Solaris Oilfield Infrastructure's (NYSE:SOI) Dividend Will Be $0.12

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) has announced that it will pay a dividend of $0.12 per share on the 17th of June. This means the annual payment is 5.0% of the current stock price, which is above the average for the industry.

See our latest analysis for Solaris Oilfield Infrastructure

Solaris Oilfield Infrastructure's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Solaris Oilfield Infrastructure's earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 7.6%. If the dividend continues on this path, the payout ratio could be 72% by next year, which we think can be pretty sustainable going forward.

Solaris Oilfield 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. The annual payment during the last 5 years was $0.40 in 2019, and the most recent fiscal year payment was $0.48. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Solaris Oilfield Infrastructure's EPS has declined at around 18% a year. 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. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Solaris Oilfield Infrastructure that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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