Viper Energy, Inc. (NASDAQ:VNOM) will increase its dividend from last year's comparable payment on the 13th of March to $0.65. The payment will take the dividend yield to 5.1%, which is in line with the average for the industry.

View our latest analysis for Viper Energy

Estimates Indicate Viper Energy's Could Struggle to Maintain Dividend Payments In The Future

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Viper Energy's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 5.9% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 172%, which could put the dividend under pressure if earnings don't start to improve.

Viper Energy Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Viper Energy has impressed us by growing EPS at 17% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

An additional note is that the company has been raising capital by issuing stock equal to 20% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Viper Energy's Dividend

Overall, we always like to see the dividend being raised, but we don't think Viper Energy will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Viper Energy that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of 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.