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Patterson-UTI Energy, Inc. (NASDAQ:PTEN) has announced that it will be increasing its dividend on the 16th of June to US$0.04. Even though the dividend went up, the yield is still quite low at only 0.7%.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Patterson-UTI Energy's stock price has increased by 63% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
View our latest analysis for Patterson-UTI Energy
Patterson-UTI Energy Might Find It Hard To Continue The Dividend
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Even in the absence of profits, Patterson-UTI Energy is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.
Over the next year, EPS might fall by 27.2% based on recent performance. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from US$0.20 in 2012 to the most recent annual payment of US$0.16. This works out to be a decline of approximately 2.2% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Has Limited Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Patterson-UTI Energy's EPS has fallen by approximately 27% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
The company has also been raising capital by issuing stock equal to 15% 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.
We're Not Big Fans Of Patterson-UTI Energy's 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. Overall, the dividend is not reliable enough to make this a good income stock.