Be Sure To Check Out Deterra Royalties Limited (ASX:DRR) Before It Goes Ex-Dividend

It looks like Deterra Royalties Limited (ASX:DRR) is about to go ex-dividend in the next day or so. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Deterra Royalties’ shares before the 25th of August in order to receive the dividend, which the company will pay on the 22nd of September.

The company’s next dividend payment will be AU$0.108 per share. Last year, in total, the company distributed AU$0.23 to shareholders. Based on the last year’s worth of payments, Deterra Royalties stock has a trailing yield of around 5.3% on the current share price of AU$4.37. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Deterra Royalties paid out more than half (75%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Deterra Royalties generated enough free cash flow to afford its dividend. It distributed 48% of its free cash flow as dividends, a comfortable payout level for most companies.

It’s positive to see that Deterra Royalties’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Deterra Royalties

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

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Deterra Royalties’s earnings per share have been growing at 14% a year for the past five years. Deterra Royalties has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, five years ago, Deterra Royalties has lifted its dividend by approximately 36% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Deterra Royalties an attractive dividend stock, or better left on the shelf? Deterra Royalties’s growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Deterra Royalties has an appealing dividend, it’s worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for Deterra Royalties that we strongly recommend you have a look at before investing in the company.

Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.

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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.