ADNOC Drilling Company P.J.S.C's (ADX:ADNOCDRILL) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of ADNOC Drilling Company P.J.S.C. (ADX:ADNOCDRILL) has announced that it will be paying its dividend of $0.0905 on the 1st of January, an increased payment from last year's comparable dividend. This makes the dividend yield 3.4%, which is above the industry average.

View our latest analysis for ADNOC Drilling Company P.J.S.C

ADNOC Drilling Company P.J.S.C's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by ADNOC Drilling Company P.J.S.C's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 20.1%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 185%, which probably can't continue without putting some pressure on the balance sheet.

ADNOC Drilling Company P.J.S.C Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2022, the dividend has gone from $0.0406 total annually to $0.0493. This means that it has been growing its distributions at 6.6% per annum over that time. ADNOC Drilling Company P.J.S.C has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that ADNOC Drilling Company P.J.S.C has grown earnings per share at 17% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On ADNOC Drilling Company P.J.S.C's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments ADNOC Drilling Company P.J.S.C has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for ADNOC Drilling Company P.J.S.C that investors need to be conscious of moving forward. 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.