Select Water Solutions Maintains Dividend Amid Mixed Q4 Results: Here's What Investors Need to Know

Select Water Solutions, Inc. (NYSE: WTTR) has reaffirmed its commitment to shareholders by maintaining its quarterly dividend at $0.07 per share, payable on May 16, 2025, to holders of record as of May 6. This decision comes amid a mixed Q4 2024 performance, with the company navigating sector-specific headwinds while positioning itself for growth in 2025. Let’s dissect the financials, strategic moves, and risks investors should consider.

Q4 2024: A Story of Sector-Specific Challenges

Select Water’s Q4 2024 revenue totaled $349 million, a 6% sequential decline from Q3 2024 but a slight improvement from the prior-year period. However, the net loss widened to $2.1 million, contrasting sharply with Q4 2023’s net income of $27.6 million. The dip was attributed to non-recurring costs and seasonal slowdowns in its Water Services segment, which saw a 10.6% sequential revenue drop to $209.3 million.

The star performer remains the Water Infrastructure segment, which delivered $76.8 million in revenue (a 26% year-over-year jump) and a robust 54.7% gross margin before D&A. Management emphasized that this segment will drive 15–25% revenue growth in 2025, with its backlog of long-term projects—including a $120,000-barrel-per-day recycling facility in the Northern Delaware Basin—positioning it for “sharp double-digit” growth in Q2 and Q3.

Strategic Moves to Watch

1. The Colorado Expansion: A $62 million investment targeting municipal and agricultural water markets aims to secure ultra-long-term contracts (up to 50 years). While this project carries longer payback periods than traditional energy projects, it offers high-margin, stable cash flows and diversification beyond volatile energy markets.
2. New Credit Facility: A $550 million sustainability-linked credit facility, secured in January 2025, slashed the net debt-to-EBITDA ratio to “substantially below 1x.” This improves liquidity and provides flexibility for capital-intensive projects like the Colorado initiative.
3. Margin Recovery: Water Services’ margins are expected to rebound to 21–22% in Q1 2025, supported by operational efficiencies and divestitures of non-core assets. Meanwhile, Chemical Technologies aims for 10–15% revenue growth and a margin expansion to 14–15% in Q1.

Near-Term Risks and Considerations

• Seasonal Pressures: Q1 2025 revenue is projected to drop by low single digits due to delayed infrastructure project completions and reduced activity in the energy sector.
• GuruFocus Warning Signs: Analysts have flagged eight warning signs, including elevated debt levels and margin volatility, though the new credit facility mitigates some balance sheet concerns.
• Dividend Sustainability: While the dividend remains stable at $0.07, the payout ratio for 2024 reached 83.3% (based on diluted EPS). Investors should monitor free cash flow trends—Q4 2024’s free cash flow was $16.2 million, down from $56.3 million in Q3—but management projects Q1 2025 EBITDA of $60–64 million, which could bolster cash generation.

Outlook for 2025 and Beyond

Select Water’s strategy hinges on three pillars:
1. Water Infrastructure Dominance: A $150 million pipeline of long-term projects and a goal to make this segment contribute 50% of consolidated profitability by year-end 2025.
2. Margin Expansion: Consolidated margins are expected to improve as infrastructure’s high margins offset weaker segments.
3. Debt Management: The new credit facility reduces reliance on equity markets, allowing reinvestment in growth without diluting shareholder value.

Conclusion: A Dividend Hold with Growth Catalysts Ahead

Select Water’s decision to maintain its dividend at $0.07 per share signals confidence in its ability to navigate near-term challenges while capitalizing on long-term opportunities. The Water Infrastructure segment’s 15–25% revenue growth potential and the $550 million credit facility provide a solid foundation for stability.

However, investors should remain cautious about seasonal declines in Q1 and the execution risks of the Colorado project. A $60–64 million Q1 EBITDA target and margin recovery in Water Services will be critical to sustaining the dividend and supporting share price.

With a 2025 revenue outlook of $1.5–$1.6 billion and free cash flow conversion targets, Select Water appears positioned for growth—if it can execute on its infrastructure pipeline and stabilize margins. For income-focused investors, the 1.9% yield (based on recent stock price of ~$3.70) offers modest returns, but the real upside lies in the company’s ability to leverage its strategic investments into sustained profitability.

In summary, Select Water’s dividend stability is a positive sign, but success hinges on its ability to convert infrastructure investments into consistent cash flows. The path forward is promising, but 2025 will be a pivotal year for proving execution.