Only Four Days Left To Cash In On Dubai Refreshment (P.J.S.C.)'s (DFM:DRC) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dubai Refreshment (P.J.S.C.) (DFM:DRC) is about to trade ex-dividend in the next four 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. In other words, investors can purchase Dubai Refreshment (P.J.S.C.)'s shares before the 2nd of October in order to be eligible for the dividend, which will be paid on the 11th of October.

The company's next dividend payment will be د.إ1.20 per share, and in the last 12 months, the company paid a total of د.إ0.80 per share. Last year's total dividend payments show that Dubai Refreshment (P.J.S.C.) has a trailing yield of 3.8% on the current share price of د.إ20.85. 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.

Check out our latest analysis for Dubai Refreshment (P.J.S.C.)

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Dubai Refreshment (P.J.S.C.) paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dubai Refreshment (P.J.S.C.) paid out more free cash flow than it generated - 178%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Dubai Refreshment (P.J.S.C.) does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Dubai Refreshment (P.J.S.C.) paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Dubai Refreshment (P.J.S.C.) to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Dubai Refreshment (P.J.S.C.) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Dubai Refreshment (P.J.S.C.)'s earnings have been skyrocketing, up 29% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, Dubai Refreshment (P.J.S.C.) has increased its dividend at approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Dubai Refreshment (P.J.S.C.) is keeping back more of its profits to grow the business.

Final Takeaway

Is Dubai Refreshment (P.J.S.C.) an attractive dividend stock, or better left on the shelf? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 178% of its cashflow, which is uncomfortably high. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Dubai Refreshment (P.J.S.C.)'s dividend merits.

So if you want to do more digging on Dubai Refreshment (P.J.S.C.), you'll find it worthwhile knowing the risks that this stock faces. We've identified 3 warning signs with Dubai Refreshment (P.J.S.C.) (at least 1 which is potentially serious), and understanding these should be part of your investment process.

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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.