Stock Analysis

Patterson-UTI Energy (NASDAQ:PTEN) Has Affirmed Its Dividend Of US$0.02

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NasdaqGS:PTEN
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Patterson-UTI Energy, Inc.'s (NASDAQ:PTEN) investors are due to receive a payment of US$0.02 per share on 16th of December. Including this payment, the dividend yield on the stock will be 0.9%, which is a modest boost for shareholders' returns.

View our latest analysis for Patterson-UTI Energy

Patterson-UTI Energy Might Find It Hard To Continue The Dividend

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Even though Patterson-UTI Energy isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to expand by 43.1% over the next year. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely a good sign though, so we wouldn't panic just yet, especially with the earnings growing.

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NasdaqGS:PTEN Historic Dividend October 31st 2021

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from US$0.20 to US$0.08. This works out to be a decline of approximately 8.8% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 23% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The company has also been raising capital by issuing stock equal to 15% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Patterson-UTI Energy's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Patterson-UTI Energy is a great stock to add to your portfolio if income is your focus.

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. As an example, we've identified 2 warning signs for Patterson-UTI Energy that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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