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National Oilwell Varco, Inc. (NYSE:NOV) stock is about to trade ex-dividend in 3 days time. Ex-dividend means that investors that purchase the stock on or after the 12th of September will not receive this dividend, which will be paid on the 27th of September.
National Oilwell Varco's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Looking at the last 12 months of distributions, National Oilwell Varco has a trailing yield of approximately 0.9% on its current stock price of $22.17. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for National Oilwell Varco
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. National Oilwell Varco paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. National Oilwell Varco paid out more free cash flow than it generated - 125%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. National Oilwell Varco reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. National Oilwell Varco's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.