Capital Drilling Limited (LON:CAPD) Passed Our Checks, And It's About To Pay A US$0.007 Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Capital Drilling Limited (LON:CAPD) is about to trade ex-dividend in the next 2 days. Investors can purchase shares before the 9th of April in order to be eligible for this dividend, which will be paid on the 4th of May.
Capital Drilling's upcoming dividend is UK£0.007 a share, following on from the last 12 months, when the company distributed a total of UK£0.014 per share to shareholders. Based on the last year's worth of payments, Capital Drilling stock has a trailing yield of around 2.4% on the current share price of £0.485. If you buy this business for its dividend, you should have an idea of whether Capital Drilling's dividend is reliable and sustainable. As a result, readers should always check whether Capital Drilling has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Capital Drilling
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Capital Drilling has a low and conservative payout ratio of just 18% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Capital Drilling has grown its earnings rapidly, up 64% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Capital Drilling's dividend payments per share have declined at 5.9% per year on average over the past five years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Final Takeaway
From a dividend perspective, should investors buy or avoid Capital Drilling? Capital Drilling has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past five years, but the conservative payout ratio makes the current dividend look sustainable. Capital Drilling looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Capital Drilling for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Capital Drilling that we recommend you consider before investing in the business.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
