Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PermRock Royalty Trust (NYSE:PRT) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 28th of January, you won't be eligible to receive this dividend, when it is paid on the 12th of February.

PermRock Royalty Trust's next dividend payment will be US$0.016 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Based on the last year's worth of payments, PermRock Royalty Trust has a trailing yield of 6.0% on the current stock price of $3.18. If you buy this business for its dividend, you should have an idea of whether PermRock Royalty Trust's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for PermRock Royalty Trust

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. PermRock Royalty Trust paid out 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. PermRock Royalty Trust's earnings per share plummeted 29% over the past year,which is rarely good news for the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. PermRock Royalty Trust has seen its dividend decline 65% per annum on average over the past two years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

From a dividend perspective, should investors buy or avoid PermRock Royalty Trust? Not only are earnings per share shrinking, but PermRock Royalty Trust is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

So if you're still interested in PermRock Royalty Trust 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 PermRock Royalty Trust (including 2 which are concerning).

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming 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.

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