Al Dhafra Insurance Company P.S.C's (ADX:DHAFRA) Dividend Is Being Reduced To د.إ0.35

The board of Al Dhafra Insurance Company P.S.C. (ADX:DHAFRA) has announced it will be reducing its dividend by 13% on the 18th of April, with shareholders receiving د.إ0.35. However, the dividend yield of 7.0% still remains in a typical range for the industry.

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

Al Dhafra Insurance Company P.S.C's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Al Dhafra Insurance Company P.S.C's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Over the next year, EPS could expand by 21.7% if recent trends continue. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 68% which brings it into quite a comfortable range.

Al Dhafra Insurance Company P.S.C's Dividend Has Lacked Consistency

Al Dhafra Insurance Company P.S.C has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The payments haven't really changed that much since 9 years ago. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Al Dhafra Insurance Company P.S.C's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Al Dhafra Insurance Company P.S.C has been growing its earnings per share at 22% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Al Dhafra Insurance Company P.S.C is not retaining those earnings to reinvest in growth.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Al Dhafra Insurance Company P.S.C that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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