Is Ras Al Khaimah National Insurance Company P.S.C. (ADX:RAKNIC) An Attractive Dividend Stock?

Could Ras Al Khaimah National Insurance Company P.S.C. (ADX:RAKNIC) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A slim 2.4% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Ras Al Khaimah National Insurance Company P.S.C could have potential. There are a few simple ways to reduce the risks of buying Ras Al Khaimah National Insurance Company P.S.C for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Ras Al Khaimah National Insurance Company P.S.C!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Ras Al Khaimah National Insurance Company P.S.C paid out 72% of its profit as dividends, over the trailing twelve month period. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

Remember, you can always get a snapshot of Ras Al Khaimah National Insurance Company P.S.C's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Ras Al Khaimah National Insurance Company P.S.C's dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was د.إ0.1 in 2011, compared to د.إ0.08 last year. The dividend has shrunk at around 4.3% a year during that period. Ras Al Khaimah National Insurance Company P.S.C's dividend hasn't shrunk linearly at 4.3% per annum, but the CAGR is a useful estimate of the historical rate of change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Over the past five years, it looks as though Ras Al Khaimah National Insurance Company P.S.C's EPS have declined at around 10% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Ras Al Khaimah National Insurance Company P.S.C's earnings per share, which support the dividend, have been anything but stable.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Ras Al Khaimah National Insurance Company P.S.C's payout ratio is within normal bounds. Earnings per share are down, and Ras Al Khaimah National Insurance Company P.S.C's dividend has been cut at least once in the past, which is disappointing. To conclude, we've spotted a couple of potential concerns with Ras Al Khaimah National Insurance Company P.S.C that may make it less than ideal candidate for dividend investors.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 2 warning signs for Ras Al Khaimah National 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 dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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