Emirates Insurance Company P.J.S.C's (ADX:EIC) Dividend Will Be Reduced To د.إ0.50

The board of Emirates Insurance Company P.J.S.C. (ADX:EIC) has announced that the dividend on 25th of April will be reduced by 17% to د.إ0.50. Despite the cut, the dividend yield of 7.1% will still be comparable to other companies in the industry.

Check out our latest analysis for Emirates Insurance Company P.J.S.C

Emirates Insurance Company P.J.S.C Is Paying Out More Than It Is Earning

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

If the company can't turn things around, EPS could fall by 4.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 114%, which could put the dividend under pressure if earnings don't start to improve.

Emirates Insurance Company P.J.S.C Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from د.إ0.54 to د.إ0.60. This works out to be a compound annual growth rate (CAGR) of approximately 1.1% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Emirates Insurance Company P.J.S.C has seen earnings per share falling at 4.0% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend 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 the current distribution levels might be a bit unsustainable, we can't deny that until now it has been very stable. We don't think Emirates Insurance Company P.J.S.C is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Emirates Insurance Company P.J.S.C that investors need to be conscious of moving forward. 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.