Patterson-UTI Energy's (NASDAQ:PTEN) Dividend Will Be $0.08

The board of Patterson-UTI Energy, Inc. (NASDAQ:PTEN) has announced that it will pay a dividend of $0.08 per share on the 16th of December. Based on this payment, the dividend yield on the company's stock will be 4.0%, which is an attractive boost to shareholder returns.

See our latest analysis for Patterson-UTI Energy

Estimates Indicate Patterson-UTI Energy's Dividend Coverage Likely To Improve

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Patterson-UTI Energy is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 2.2%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.40 in 2014, and the most recent fiscal year payment was $0.32. Doing the maths, this is a decline of about 2.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Patterson-UTI Energy has impressed us by growing EPS at 44% per year over the past five years. While the company hasn't yet recorded a profit, the growth rates are healthy. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

Our Thoughts On Patterson-UTI Energy's Dividend

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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Patterson-UTI Energy that you should be aware of before investing. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.