Stock Analysis

Don't Buy Patterson-UTI Energy, Inc. (NASDAQ:PTEN) For Its Next Dividend Without Doing These Checks

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NasdaqGS:PTEN
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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 four days. Ex-dividend means that investors that purchase the stock on or after the 2nd of December will not receive this dividend, which will be paid on the 17th of December.

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. Calculating the last year's worth of payments shows that Patterson-UTI Energy has a trailing yield of 1.7% on the current share price of $4.835. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Patterson-UTI Energy

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. Patterson-UTI Energy reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the 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. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.

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

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NasdaqGS:PTEN Historic Dividend November 27th 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. 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. 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.

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? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Patterson-UTI Energy and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 3 warning signs with Patterson-UTI Energy (at least 1 which is significant), and understanding them should be part of your investment process.

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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