It Might Not Be A Great Idea To Buy Al Dhafra Insurance Company P.S.C. (ADX:DHAFRA) For Its Next Dividend

Al Dhafra Insurance Company P.S.C. (ADX:DHAFRA) is about to trade ex-dividend in the next 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Al Dhafra Insurance Company P.S.C's shares on or after the 30th of March will not receive the dividend, which will be paid on the 21st of April.

The company's upcoming dividend is د.إ0.30 a share, following on from the last 12 months, when the company distributed a total of د.إ0.30 per share to shareholders. Last year's total dividend payments show that Al Dhafra Insurance Company P.S.C has a trailing yield of 5.6% on the current share price of AED5.4. If you buy this business for its dividend, you should have an idea of whether Al Dhafra Insurance Company P.S.C's dividend is reliable and sustainable. So we need to investigate whether Al Dhafra Insurance Company P.S.C can afford its dividend, and if the dividend could grow.

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

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. Al Dhafra Insurance Company P.S.C distributed an unsustainably high 119% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Click here to see how much of its profit Al Dhafra Insurance Company P.S.C paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Al Dhafra Insurance Company P.S.C, with earnings per share up 6.2% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Al Dhafra Insurance Company P.S.C has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Is Al Dhafra Insurance Company P.S.C an attractive dividend stock, or better left on the shelf? Al Dhafra Insurance Company P.S.C has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

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 Al Dhafra Insurance Company P.S.C. For example, Al Dhafra Insurance Company P.S.C has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.