Here's Why We're Wary Of Buying Gulf Medical Projects Company (PJSC)'s (ADX:GMPC) For Its Upcoming Dividend

Gulf Medical Projects Company (PJSC) (ADX:GMPC) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Gulf Medical Projects Company (PJSC)'s shares before the 15th of March to receive the dividend, which will be paid on the 8th of April.

The company's next dividend payment will be د.إ0.10 per share. Last year, in total, the company distributed د.إ0.10 to shareholders. Looking at the last 12 months of distributions, Gulf Medical Projects Company (PJSC) has a trailing yield of approximately 5.6% on its current stock price of د.إ1.79. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Gulf Medical Projects Company (PJSC) has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Gulf Medical Projects Company (PJSC)

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Gulf Medical Projects Company (PJSC) distributed an unsustainably high 117% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 96% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

As Gulf Medical Projects Company (PJSC)'s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Gulf Medical Projects Company (PJSC) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Gulf Medical Projects Company (PJSC)'s earnings per share have dropped 13% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Gulf Medical Projects Company (PJSC) has increased its dividend at approximately 8.2% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Gulf Medical Projects Company (PJSC) is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Should investors buy Gulf Medical Projects Company (PJSC) for the upcoming dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (117%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not that we think Gulf Medical Projects Company (PJSC) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Gulf Medical Projects Company (PJSC) despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 3 warning signs for Gulf Medical Projects Company (PJSC) (2 are a bit concerning!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.