The board of Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) has announced that it will pay a dividend on the 24th of September, with investors receiving US$0.10 per share. This makes the dividend yield 6.0%, which will augment investor returns quite nicely.
Solaris Oilfield Infrastructure Might Find It Hard To Continue The Dividend
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. These payout levels would generally be quite difficult to keep up.
Recent, EPS has fallen by 18.7%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Solaris Oilfield Infrastructure Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The first annual payment during the last 3 years was US$0.40 in 2018, and the most recent fiscal year payment was US$0.42. This works out to be a compound annual growth rate (CAGR) of approximately 1.6% a year over that time. Solaris Oilfield Infrastructure hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Solaris Oilfield Infrastructure's earnings per share has shrunk at 19% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Solaris Oilfield Infrastructure's Dividend Doesn't Look Great
In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Solaris Oilfield Infrastructure that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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