Patterson-UTI Energy, Inc. (NASDAQ:PTEN) will pay a dividend of $0.08 on the 16th of June. This makes the dividend yield 5.3%, which will augment investor returns quite nicely.

We've discovered 3 warning signs about Patterson-UTI Energy. View them for free.

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

While it is great to have a strong dividend yield, we should also consider whether the payment is 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. If the dividend extends its recent trend, estimates say the dividend could reach 0.9%, which we would be comfortable to see continuing.

Check out our latest analysis for Patterson-UTI Energy

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from $0.40 total annually to $0.32. This works out to be a decline of approximately 2.2% 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 Company Could Face Some Challenges Growing The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Patterson-UTI Energy has seen EPS rising for the last five years, at 36% per annum. While the company hasn't yet recorded a profit, the growth rates are healthy. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

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. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Patterson-UTI Energy that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.