Readers hoping to buy Adams Natural Resources Fund, Inc. (NYSE:PEO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 20th of November in order to be eligible for this dividend, which will be paid on the 18th of December.
Adams Natural Resources Fund's next dividend payment will be US$0.43 per share. Last year, in total, the company distributed US$0.73 to shareholders. Based on the last year's worth of payments, Adams Natural Resources Fund has a trailing yield of 6.8% on the current stock price of $10.66. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Adams Natural Resources Fund reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Adams Natural Resources Fund reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Adams Natural Resources Fund has seen its dividend decline 5.4% per annum on average over the past 10 years, which is not great to see.
The Bottom Line
Should investors buy Adams Natural Resources Fund for the upcoming dividend? We're uncomfortable with the fact that Adams Natural Resources Fund paid a dividend while being loss-making. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
If you want to look further into Adams Natural Resources Fund, it's worth knowing the risks this business faces. Our analysis shows 1 warning sign for Adams Natural Resources Fund and you should be aware of this before buying any shares.
If you're in the market for dividend stocks, we recommend checking our list of top 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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