Three Days Left To Buy Dubai Refreshment (P.J.S.C.) (DFM:DRC) Before The Ex-Dividend Date

Dubai Refreshment (P.J.S.C.) (DFM:DRC) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Dubai Refreshment (P.J.S.C.)'s shares on or after the 21st of March, you won't be eligible to receive the dividend, when it is paid on the 7th of April.

The company's next dividend payment will be د.إ1.00 per share. Last year, in total, the company distributed د.إ1.00 to shareholders. Based on the last year's worth of payments, Dubai Refreshment (P.J.S.C.) has a trailing yield of 4.4% on the current stock price of د.إ22.55. If you buy this business for its dividend, you should have an idea of whether Dubai Refreshment (P.J.S.C.)'s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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

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. Dubai Refreshment (P.J.S.C.) is paying out an acceptable 69% of its profit, a common payout level among 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. Over the past year it paid out 163% of its free cash flow as dividends, which is uncomfortably 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.

While Dubai Refreshment (P.J.S.C.)'s dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its 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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Dubai Refreshment (P.J.S.C.)'s earnings per share have risen 15% per annum over the last five years. Earnings have been growing at a decent rate, 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. Dubai Refreshment (P.J.S.C.) has delivered 4.4% dividend growth per year on average over the past 10 years. 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.

The Bottom Line

Has Dubai Refreshment (P.J.S.C.) got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Dubai Refreshment (P.J.S.C.) paid out a much higher percentage of its free cash flow, which makes us uncomfortable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

However if you're still interested in Dubai Refreshment (P.J.S.C.) as a potential investment, you should definitely consider some of the risks involved with Dubai Refreshment (P.J.S.C.). We've identified 3 warning signs with Dubai Refreshment (P.J.S.C.) (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

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.