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Scorpio Tankers Inc. (NYSE:STNG) has announced that it will pay a dividend of US$0.10 per share on the 29th of September. Including this payment, the dividend yield on the stock will be 2.7%, which is a modest boost for shareholders' returns.
View our latest analysis for Scorpio Tankers
Scorpio Tankers' Distributions May Be Difficult To Sustain
Even a low dividend yield can be attractive if it is sustained for years on end. Even though Scorpio Tankers isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Looking forward, earnings per share is forecast to expand by 90.2% over the next year. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.
Scorpio Tankers' Dividend Has Lacked Consistency
It's comforting to see that Scorpio Tankers has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2013, the first annual payment was US$1.00, compared to the most recent full-year payment of US$0.40. The dividend has fallen 60% over that period. A company that decreases its dividend over time generally isn't what we are looking for.
Scorpio Tankers Could Grow Its Dividend
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Scorpio Tankers has seen EPS rising for the last five years, at 9.9% per annum. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.
Our Thoughts On Scorpio Tankers' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Scorpio Tankers' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Scorpio Tankers that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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