United Drilling Tools (NSE:UNIDT) Will Pay A Dividend Of ₹0.60

United Drilling Tools Limited (NSE:UNIDT) has announced that it will pay a dividend of ₹0.60 per share on the 26th of October. The dividend yield is 0.6% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for United Drilling Tools

United Drilling Tools' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, United Drilling Tools was paying a whopping 283% as a dividend, but this only made up 11% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 46.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 9.0%, which is in the range that makes us comfortable with the sustainability of the dividend.

United Drilling Tools Doesn't Have A Long Payment History

United Drilling Tools' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, the annual payment back then was ₹0.60, compared to the most recent full-year payment of ₹2.10. This implies that the company grew its distributions at a yearly rate of about 28% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. United Drilling Tools has seen EPS rising for the last five years, at 46% per annum. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for United Drilling Tools that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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