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It Might Not Be A Great Idea To Buy Nabors Industries Ltd. (NYSE:NBR) For Its Next Dividend

Simply Wall St

Nabors Industries Ltd. (NYSE:NBR) is about to trade ex-dividend in the next 1 days. Ex-dividend means that investors that purchase the stock on or after the 12th of December will not receive this dividend, which will be paid on the 3rd of January.

Nabors Industries's next dividend payment will be US$0.01 per share, on the back of last year when the company paid a total of US$0.04 to shareholders. Calculating the last year's worth of payments shows that Nabors Industries has a trailing yield of 1.6% on the current share price of $2.51. If you buy this business for its dividend, you should have an idea of whether Nabors Industries's dividend is reliable and sustainable. So we need to investigate whether Nabors Industries can afford its dividend, and if the dividend could grow.

View our latest analysis for Nabors Industries

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Nabors Industries reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Nabors Industries didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:NBR Historical Dividend Yield, December 10th 2019

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Nabors Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nabors Industries has seen its dividend decline 18% per annum on average over the past seven years, which is not great to see.

Remember, you can always get a snapshot of Nabors Industries's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is Nabors Industries an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Ever wonder what the future holds for Nabors Industries? See what the 20 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.