Three Days Left Until United Drilling Tools Limited (NSE:UNIDT) Trades Ex-Dividend

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 United Drilling Tools Limited (NSE:UNIDT) is about to go ex-dividend in just 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, United Drilling Tools investors that purchase the stock on or after the 18th of February will not receive the dividend, which will be paid on the 9th of March.

The company's upcoming dividend is ₹0.60 a share, following on from the last 12 months, when the company distributed a total of ₹1.80 per share to shareholders. Last year's total dividend payments show that United Drilling Tools has a trailing yield of 0.8% on the current share price of ₹233.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether United Drilling Tools can afford its dividend, and if the dividend could grow.

See our latest analysis for United Drilling Tools

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. United Drilling Tools paid out a comfortable 26% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 10% of its free cash flow in the last year.

It's positive to see that United Drilling Tools's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit United Drilling Tools paid out over the last 12 months.

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. United Drilling Tools's earnings per share have fallen at approximately 10% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, United Drilling Tools has lifted its dividend by approximately 15% a year on average.

The Bottom Line

Is United Drilling Tools an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. All things considered, we are not particularly enthused about United Drilling Tools from a dividend perspective.

In light of that, while United Drilling Tools has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 3 warning signs for United Drilling Tools (1 is potentially serious) you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.