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Nordic American Tankers Limited ( NYSE:NAT ) stock is about to trade ex-dividend in 4 days. If you purchase the stock on or after the 1st of December, you won't be eligible to receive this dividend, when it is paid on the 15th of December.
Nordic American Tankers's next dividend payment will be US$0.04 per share, and in the last 12 months, the company paid a total of US$0.43 per share. Last year's total dividend payments show that Nordic American Tankers has a trailing yield of 13% on the current share price of $3.38. If you buy this business for its dividend, you should have an idea of whether Nordic American Tankers's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Nordic American Tankers is paying out an acceptable 73% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.
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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Nordic American Tankers's 22% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
We'd also point out that Nordic American Tankers issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nordic American Tankers has seen its dividend decline 23% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Is Nordic American Tankers worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least Nordic American Tankers's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Nordic American Tankers.
So if you're still interested in Nordic American Tankers despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 5 warning signs for Nordic American Tankers that we strongly recommend you have a look at before investing in the company.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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