Brigham Minerals, Inc. (NYSE:MNRL) has announced that it will be increasing its dividend on the 27th of August to US$0.35. This will take the dividend yield from 5.4% to 6.2%, providing a nice boost to shareholder returns.

See our latest analysis for Brigham Minerals

Brigham Minerals' Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. Brigham Minerals is unprofitable despite paying a dividend, and it is paying out 768% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

If nothing changes, EPS could fall just as dramatically this year as it has recently. This could force the company to make difficult decisions around continuing payouts to shareholders or putting additional pressure on the balance sheet.

Brigham Minerals' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2019, the first annual payment was US$1.32, compared to the most recent full-year payment of US$1.01. This works out to a decline of approximately 23% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Brigham Minerals' earnings per share has fallen 319% over the past year. Decreases in earnings as large as this could start to put some pressure on the dividend if they are sustained for several years. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

We're Not Big Fans Of Brigham Minerals' Dividend

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Brigham Minerals you should be aware of, and 1 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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