United Drilling Tools (NSE:UNIDT) Is Due To Pay A Dividend Of ₹0.60

United Drilling Tools Limited (NSE:UNIDT) will pay a dividend of ₹0.60 on the 26th of October. This payment means the dividend yield will be 0.6%, which is below the average for the industry.

Check out our latest analysis for United Drilling Tools

United Drilling Tools' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, United Drilling Tools was paying only paying out a fraction of earnings, but the payment was a massive 1,719% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS could expand by 46.3% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.0% by next year, which is in a pretty sustainable range.

United Drilling Tools Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the dividend has gone from ₹0.60 total annually to ₹2.10. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that United Drilling Tools has been growing its earnings per share at 46% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On United Drilling Tools' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for United Drilling Tools that investors should know about before committing capital to this stock. Is United Drilling Tools not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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