Dividend Investors: Don't Be Too Quick To Buy Agthia Group PJSC (ADX:AGTHIA) For Its Upcoming Dividend

Agthia Group PJSC (ADX:AGTHIA) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 15th of April in order to be eligible for this dividend, which will be paid on the 1st of January.

Agthia Group PJSC's next dividend payment will be د.إ0.17 per share, and in the last 12 months, the company paid a total of د.إ0.17 per share. Calculating the last year's worth of payments shows that Agthia Group PJSC has a trailing yield of 2.5% on the current share price of AED6.58. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Agthia Group PJSC

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. Agthia Group PJSC paid out a disturbingly high 287% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Agthia Group PJSC's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Agthia Group PJSC's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 32% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Agthia Group PJSC has lifted its dividend by approximately 13% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Agthia Group PJSC is already paying out 287% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

From a dividend perspective, should investors buy or avoid Agthia Group PJSC? It's not a great combination to see a company with earnings in decline and paying out 287% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Agthia Group PJSC's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Agthia Group PJSC. To help with this, we've discovered 3 warning signs for Agthia Group PJSC that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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