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We Wouldn't Be Too Quick To Buy National Oilwell Varco, Inc. (NYSE:NOV) Before It Goes Ex-Dividend

Simply Wall St

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that National Oilwell Varco, Inc. (NYSE:NOV) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 12th of March, you won't be eligible to receive this dividend, when it is paid on the 27th of March.

National Oilwell Varco's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Calculating the last year's worth of payments shows that National Oilwell Varco has a trailing yield of 1.3% on the current share price of $15.68. If you buy this business for its dividend, you should have an idea of whether National Oilwell Varco's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for National Oilwell Varco

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. National Oilwell Varco lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

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

NYSE:NOV Historical Dividend Yield, March 7th 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. National Oilwell Varco reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. National Oilwell Varco's dividend payments per share have declined at 6.7% per year on average over the past ten years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on National Oilwell Varco every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Has National Oilwell Varco got what it takes to maintain its dividend payments? It's hard to get used to National Oilwell Varco paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering National Oilwell Varco as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 1 warning sign for National Oilwell Varco that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.