Sharjah Islamic Bank PJSC (ADX:SIB) Is Due To Pay A Dividend Of د.إ0.08

The board of Sharjah Islamic Bank PJSC (ADX:SIB) has announced that it will pay a dividend on the 22nd of March, with investors receiving د.إ0.08 per share. Based on this payment, the dividend yield on the company's stock will be 4.1%, which is an attractive boost to shareholder returns.

See our latest analysis for Sharjah Islamic Bank PJSC

Sharjah Islamic Bank PJSC's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Sharjah Islamic Bank PJSC's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 0.6% if recent trends continue. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was د.إ0.048, compared to the most recent full-year payment of د.إ0.08. This means that it has been growing its distributions at 5.3% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Sharjah Islamic Bank PJSC's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.6% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Sharjah Islamic Bank PJSC's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sharjah Islamic Bank PJSC's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Sharjah Islamic Bank PJSC you should be aware of, and 1 of them is a bit unpleasant. We have also put together a list of global stocks with a solid dividend.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.