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Here's Why We're Wary Of Buying Nordic American Tankers Limited's (NYSE:NAT) For Its Upcoming Dividend

Simply Wall St

It looks like Nordic American Tankers Limited (NYSE:NAT) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 4th of December will not receive this dividend, which will be paid on the 18th of December.

Nordic American Tankers's upcoming dividend is US$0.02 a share, following on from the last 12 months, when the company distributed a total of US$0.08 per share to shareholders. Calculating the last year's worth of payments shows that Nordic American Tankers has a trailing yield of 2.2% on the current share price of $3.59. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Nordic American Tankers has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Nordic American Tankers

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Nordic American Tankers paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Nordic American Tankers didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 24% of its free cash flow in the last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:NAT Historical Dividend Yield, November 30th 2019

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Nordic American Tankers reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

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 34% per annum on average over the past ten 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.

We update our analysis on Nordic American Tankers every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Should investors buy Nordic American Tankers for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Nordic American Tankers.

Ever wonder what the future holds for Nordic American Tankers? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.