Dubai Financial Market P.J.S.C (DFM:DFM) Has Announced That Its Dividend Will Be Reduced To AED0.032

Dubai Financial Market P.J.S.C. (DFM:DFM) has announced that on 1st of January, it will be paying a dividend ofAED0.032, which a reduction from last year's comparable dividend. Despite the cut, the dividend yield of 2.7% will still be comparable to other companies in the industry.

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Dubai Financial Market P.J.S.C's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Dubai Financial Market P.J.S.C's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 27.4% over the next year. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Dubai Financial Market P.J.S.C

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from AED0.07 total annually to AED0.035. Doing the maths, this is a decline of about 6.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. We are encouraged to see that Dubai Financial Market P.J.S.C has grown earnings per share at 26% per year over the past five years. Dubai Financial Market P.J.S.C is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Dubai Financial Market P.J.S.C's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Dubai Financial Market P.J.S.C has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Are management backing themselves to deliver performance? Check their shareholdings in Dubai Financial Market P.J.S.C in our latest insider ownership analysis. If you are a dividend investor, you might also want to look at our curated list of high yield 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.