Key Things To Consider Before Buying Sharjah Insurance Company P.S.C. (ADX:SICO) For Its Dividend

Dividend paying stocks like Sharjah Insurance Company P.S.C. (ADX:SICO) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

In this case, Sharjah Insurance Company P.S.C likely looks attractive to dividend investors, given its 3.3% dividend yield and nine-year payment history. We'd agree the yield does look enticing. Some simple research can reduce the risk of buying Sharjah Insurance Company P.S.C for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Sharjah Insurance Company P.S.C!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Sharjah Insurance Company P.S.C paid out 82% of its profit as dividends, over the trailing twelve month period. Paying out a majority of its earnings limits the amount that can be reinvested in the business. This may indicate a commitment to paying a dividend, or a dearth of investment opportunities.

We update our data on Sharjah Insurance Company P.S.C every 24 hours, so you can always get our latest analysis of its financial health, here.

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. Looking at the last decade of data, we can see that Sharjah Insurance Company P.S.C paid its first dividend at least nine years ago. It's good to see that Sharjah Insurance Company P.S.C has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past nine-year period, the first annual payment was د.إ0.1 in 2012, compared to د.إ0.07 last year. The dividend has shrunk at around 3.9% a year during that period. Sharjah Insurance Company P.S.C's dividend has been cut sharply at least once, so it hasn't fallen by 3.9% every year, but this is a decent approximation of the long term change.

We struggle to make a case for buying Sharjah Insurance Company P.S.C for its dividend, given that payments have shrunk over the past nine years.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Sharjah Insurance Company P.S.C has grown its earnings per share at 15% per annum over the past five years. EPS are growing rapidly, although the company is also paying out more than three-quarters of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

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. Sharjah Insurance Company P.S.C's payout ratio is within an average range for most market participants. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Sharjah Insurance Company P.S.C might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Sharjah Insurance Company P.S.C that you should be aware of before investing.

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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