Stock Analysis

Do These 3 Checks Before Buying Patterson-UTI Energy, Inc. (NASDAQ:PTEN) For Its Upcoming Dividend

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NasdaqGS:PTEN
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Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 3rd of March in order to receive the dividend, which the company will pay on the 18th of March.

Patterson-UTI Energy's next dividend payment will be US$0.02 per share. Last year, in total, the company distributed US$0.08 to shareholders. Based on the last year's worth of payments, Patterson-UTI Energy stock has a trailing yield of around 1.1% on the current share price of $7.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. 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 14% of its free cash flow last year.

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

historic-dividend
NasdaqGS:PTEN Historic Dividend February 27th 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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's dividend payments per share have declined at 8.8% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

We update our analysis on Patterson-UTI Energy every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Should investors buy Patterson-UTI Energy for the upcoming dividend? 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 the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Patterson-UTI Energy don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 2 warning signs for Patterson-UTI Energy that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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What are the risks and opportunities for Patterson-UTI Energy?

Patterson-UTI Energy, Inc., through its subsidiaries, provides onshore contract drilling services to oil and natural gas operators in the United States and internationally.

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Rewards

  • Trading at 57.6% below our estimate of its fair value

  • Earnings are forecast to grow 32.67% per year

Risks

  • Has less than 1 year of cash runway

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