The board of Solaris Energy Infrastructure, Inc. (NYSE:SEI) has announced that it will pay a dividend on the 16th of December, with investors receiving $0.12 per share. Based on this payment, the dividend yield on the company's stock will be 2.9%, which is an attractive boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Solaris Energy Infrastructure's stock price has increased by 41% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Solaris Energy Infrastructure

Solaris Energy Infrastructure's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS is forecast to expand by 85.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Solaris Energy Infrastructure Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2018, the annual payment back then was $0.40, compared to the most recent full-year payment of $0.48. This works out to be a compound annual growth rate (CAGR) of approximately 3.1% a year over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Solaris Energy Infrastructure's EPS has fallen by approximately 25% per year during the past 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We should note that Solaris Energy Infrastructure has issued stock equal to 37% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Solaris Energy Infrastructure's Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Solaris Energy Infrastructure (1 is significant!) that you should be aware of before investing. Is Solaris Energy Infrastructure not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.