Sitio Royalties' (NYSE:STR) Dividend Is Being Reduced To $0.28

Sitio Royalties Corp. (NYSE:STR) is reducing its dividend from last year's comparable payment to $0.28 on the 27th of November. The yield is still above the industry average at 7.6%.

See our latest analysis for Sitio Royalties

Sitio Royalties' Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Sitio Royalties' Could Struggle to Maintain Dividend Payments In The Future

Sitio Royalties' Future Dividends May Potentially Be At Risk

A big dividend yield for a few years doesn't mean much if it can't be sustained. Sitio Royalties is unprofitable despite paying a dividend, and it is paying out 97% of its free cash flow. These payout levels would generally be quite difficult to keep up.

EPS is forecast to rise very quickly over the next 12 months. Assuming the dividend continues along recent trends, we could see the payout ratio reach 1,169%, which is on the unsustainable side.

Sitio Royalties' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 2 years was $2.84 in 2022, and the most recent fiscal year payment was $1.90. Dividend payments have fallen sharply, down 33% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Sitio Royalties' earnings per share has fallen 119% over the past year. Such a large drop can indicate that the business has run into some trouble and might end up in the dividend having to be reduced. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.

Sitio Royalties' Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Sitio Royalties that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.