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Cross Timbers Royalty Trust (NYSE:CRT) Is Paying Out A Larger Dividend Than Last Year

Cross Timbers Royalty Trust (NYSE:CRT) will increase its dividend on the 13th of August to US$0.12. This will take the dividend yield from 6.8% to 6.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for Cross Timbers Royalty Trust

Cross Timbers Royalty Trust Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Cross Timbers Royalty Trust's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

If the company can't turn things around, EPS could fall by 12.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 124%, which could put the dividend in jeopardy if the company's earnings don't improve.

historic-dividend
historic-dividend

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was US$2.55 in 2011, and the most recent fiscal year payment was US$0.84. The dividend has fallen 67% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Cross Timbers Royalty Trust's EPS has fallen by approximately 13% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Cross Timbers Royalty Trust's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Cross Timbers Royalty Trust is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for Cross Timbers Royalty Trust you should be aware of, and 1 of them is a bit unpleasant. We have also put together a list of global stocks with a solid dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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