We Wouldn't Be Too Quick To Buy Emirates Insurance Company P.J.S.C. (ADX:EIC) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Emirates Insurance Company P.J.S.C. (ADX:EIC) is about to go ex-dividend in just three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Emirates Insurance Company P.J.S.C investors that purchase the stock on or after the 6th of April will not receive the dividend, which will be paid on the 28th of April.

The company's next dividend payment will be د.إ0.50 per share. Last year, in total, the company distributed د.إ0.50 to shareholders. Based on the last year's worth of payments, Emirates Insurance Company P.J.S.C has a trailing yield of 6.3% on the current stock price of AED7.99. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Emirates Insurance Company P.J.S.C can afford its dividend, and if the dividend could grow.

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

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. An unusually high payout ratio of 227% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Emirates Insurance Company P.J.S.C's earnings per share have dropped 8.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Emirates Insurance Company P.J.S.C's dividend payments per share have declined at 0.8% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

From a dividend perspective, should investors buy or avoid Emirates Insurance Company P.J.S.C? Not only are earnings per share shrinking, but Emirates Insurance Company P.J.S.C is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. 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.

So if you're still interested in Emirates Insurance Company P.J.S.C despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 3 warning signs for Emirates Insurance Company P.J.S.C (of which 2 shouldn't be ignored!) you should know about.

If you're in the market for strong dividend payers, we recommend checking 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.