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The board of Liberty Energy Inc. (NYSE:LBRT) has announced that it will be paying its dividend of $0.08 on the 20th of December, an increased payment from last year's comparable dividend. This takes the annual payment to 1.8% of the current stock price, which unfortunately is below what the industry is paying.
View our latest analysis for Liberty Energy
Liberty Energy's Future Dividend Projections Appear Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Liberty Energy's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 6.3%. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.
Liberty Energy's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the dividend has gone from $0.20 total annually to $0.32. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Liberty Energy has grown earnings per share at 17% per year over the past five years. Liberty Energy definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Liberty Energy Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Liberty Energy has 3 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.