Cactus' (NYSE:WHD) Dividend Will Be Increased To $0.12
The board of Cactus, Inc. (NYSE:WHD) has announced that it will be paying its dividend of $0.12 on the 14th of September, an increased payment from last year's comparable dividend. This takes the annual payment to 0.9% of the current stock price, which unfortunately is below what the industry is paying.
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 Cactus' stock price has increased by 48% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for Cactus
Cactus' Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Cactus was easily earning enough to cover the dividend. 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 172.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 10%, which is in the range that makes us comfortable with the sustainability of the dividend.
Cactus Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of $0.36 in 2019 to the most recent total annual payment of $0.48. This implies that the company grew its distributions at a yearly rate of about 7.5% over that duration. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Cactus to be a consistent dividend paying stock.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Cactus' EPS has fallen by approximately 20% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
Our Thoughts On Cactus' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good 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. As an example, we've identified 1 warning sign for Cactus that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
