Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Patterson-UTI Energy Inc (NASDAQ:PTEN) has paid a dividend to shareholders. It currently yields 1.2%. Does Patterson-UTI Energy tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does Patterson-UTI Energy fit our criteria?
The company currently pays out 35% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect PTEN’s payout to remain around the same level at 34% of its earnings, which leads to a dividend yield of 1.1%. Furthermore, EPS is forecasted to fall to $-0.25 in the upcoming year.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from Patterson-UTI Energy fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, Patterson-UTI Energy generates a yield of 1.2%, which is on the low-side for Energy Services stocks.
Now you know to keep in mind the reason why investors should be careful investing in Patterson-UTI Energy for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for PTEN’s future growth? Take a look at our free research report of analyst consensus for PTEN’s outlook.
- Valuation: What is PTEN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PTEN is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.