Yahoo Finance Here's Why We're Wary Of Buying Source Rock Royalties' (CVE:SRR) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Source Rock Royalties Ltd. (CVE:SRR) is about to trade ex-dividend in the next 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Source Rock Royalties' shares before the 29th of April in order to receive the dividend, which the company will pay on the 15th of May.
The company's upcoming dividend is CA$0.0065 a share, following on from the last 12 months, when the company distributed a total of CA$0.072 per share to shareholders. Based on the last year's worth of payments, Source Rock Royalties stock has a trailing yield of around 8.9% on the current share price of CA$0.88. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Source Rock Royalties
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Source Rock Royalties distributed an unsustainably high 190% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Source Rock Royalties generated enough free cash flow to afford its dividend.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Source Rock Royalties fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see how much of its profit Source Rock Royalties paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Source Rock Royalties's earnings per share have risen 19% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Source Rock Royalties has delivered an average of 14% per year annual increase in its dividend, based on the past two years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Has Source Rock Royalties got what it takes to maintain its dividend payments? While it's nice to see earnings per share growing, we're curious about how Source Rock Royalties intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. Bottom line: Source Rock Royalties has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
So if you're still interested in Source Rock Royalties despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To that end, you should learn about the 5 warning signs we've spotted with Source Rock Royalties (including 2 which are concerning).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
