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We Wouldn't Be Too Quick To Buy Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Before It Goes Ex-Dividend

Simply Wall St
·4 mins read

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 4th of March will not receive the dividend, which will be paid on the 19th of March.

Patterson-UTI Energy's next dividend payment will be US$0.04 per share, and in the last 12 months, the company paid a total of US$0.16 per share. Based on the last year's worth of payments, Patterson-UTI Energy stock has a trailing yield of around 2.9% on the current share price of $5.61. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Patterson-UTI Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Patterson-UTI Energy reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Patterson-UTI Energy 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. Luckily it paid out just 9.3% of its free cash flow last year.

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

NasdaqGS:PTEN Historical Dividend Yield, February 28th 2020
NasdaqGS:PTEN Historical Dividend Yield, February 28th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Patterson-UTI Energy 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. Patterson-UTI Energy has seen its dividend decline 2.2% per annum on average over the past ten years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Get our latest analysis on Patterson-UTI Energy's balance sheet health here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Patterson-UTI Energy? 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. It's not that we think Patterson-UTI Energy is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Wondering what the future holds for Patterson-UTI Energy? See what the 20 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.