Dividend Investors: Don't Be Too Quick To Buy Emirates Integrated Telecommunications Company PJSC (DFM:DU) For Its Upcoming Dividend

It looks like Emirates Integrated Telecommunications Company PJSC (DFM:DU) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 29th of July in order to be eligible for this dividend, which will be paid on the 1st of January.

Emirates Integrated Telecommunications Company PJSC's next dividend payment will be د.إ0.13 per share, on the back of last year when the company paid a total of د.إ0.34 to shareholders. Calculating the last year's worth of payments shows that Emirates Integrated Telecommunications Company PJSC has a trailing yield of 6.6% on the current share price of AED5.13. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Emirates Integrated Telecommunications Company PJSC

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Emirates Integrated Telecommunications Company PJSC distributed an unsustainably high 111% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. It paid out 99% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Cash is slightly more important than profit from a dividend perspective, but given Emirates Integrated Telecommunications Company PJSC's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Emirates Integrated Telecommunications Company PJSC's earnings per share have fallen at approximately 7.9% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Emirates Integrated Telecommunications Company PJSC has delivered 11% dividend growth per year on average over the past eight years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Emirates Integrated Telecommunications 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

Is Emirates Integrated Telecommunications Company PJSC an attractive dividend stock, or better left on the shelf? Not only are earnings per share declining, but Emirates Integrated Telecommunications Company PJSC is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. It's not that we think Emirates Integrated Telecommunications Company PJSC is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Emirates Integrated Telecommunications Company PJSC as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for Emirates Integrated Telecommunications Company PJSC you should be aware of.

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.

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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. 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.
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