Al Dhafra Insurance Company P.S.C (ADX:DHAFRA) Is Due To Pay A Dividend Of AED0.35

Al Dhafra Insurance Company P.S.C. (ADX:DHAFRA) has announced that it will pay a dividend of AED0.35 per share on the 1st of January. Based on this payment, the dividend yield will be 6.5%, which is fairly typical for the industry.

Check out our latest analysis for Al Dhafra Insurance Company P.S.C

Estimates Indicate Al Dhafra Insurance Company P.S.C's Could Struggle to Maintain Dividend Payments In The Future

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Al Dhafra Insurance Company P.S.C's was paying out quite a large proportion of earnings and 81% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Looking forward, EPS could fall by 11.6% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 103%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was AED0.40 in 2015, and the most recent fiscal year payment was AED0.35. The dividend has shrunk at around 1.3% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Al Dhafra Insurance Company P.S.C's EPS has declined at around 12% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Al Dhafra Insurance Company P.S.C's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Al Dhafra Insurance Company P.S.C (1 is significant!) that you should be aware of before investing. Is Al Dhafra Insurance Company P.S.C not quite the opportunity you were looking for? Why not check out 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.