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Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) will pay a dividend of US$0.10 on the 25th of June. The dividend yield will be 3.8% based on this payment which is still above the industry average.
Solaris Oilfield Infrastructure Might Find It Hard To Continue The Dividend
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Solaris Oilfield Infrastructure is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.
Looking forward, earnings per share could 13.1% over the next year if the trend of the last few years can't be broken. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.
Solaris Oilfield Infrastructure Is Still Building Its Track Record
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2019, the first annual payment was US$0.40, compared to the most recent full-year payment of US$0.42. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.
The Dividend Has Limited Growth Potential
The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Solaris Oilfield Infrastructure's EPS has fallen by approximately 13% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Solaris Oilfield Infrastructure's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Solaris Oilfield Infrastructure that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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