Al Dhafra Insurance Company P.S.C's (ADX:DHAFRA) Dividend Will Be 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 28th of April. Based on this payment, the dividend yield on the company's stock will be 7.2%, which is an attractive boost to shareholder returns.

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Al Dhafra Insurance Company P.S.C's Future Dividends May Potentially Be At Risk

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. 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. If the dividend continues along recent trends, we estimate the payout ratio could reach 104%, which could put the dividend in jeopardy if the company's earnings don't improve.

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

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. Since 2015, the annual payment back then was AED0.40, compared to the most recent full-year payment of AED0.35. This works out to be a decline of approximately 1.3% per year over that time. 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 Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends 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. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

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

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Al Dhafra Insurance Company P.S.C you should be aware of, and 1 of them is significant. 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.