Sharjah Insurance Company P.S.C (ADX:SICO) Has Announced That Its Dividend Will Be Reduced To AED0.05

Sharjah Insurance Company P.S.C. (ADX:SICO) is reducing its dividend to AED0.05 on the 1st of Januarywhich is 29% less than last year's comparable payment of AED0.07. This means that the annual payment is 4.2% of the current stock price, which is lower than what the rest of the industry is paying.

We've discovered 5 warning signs about Sharjah Insurance Company P.S.C. View them for free.

Sharjah Insurance Company P.S.C's Future Dividends May Potentially Be At Risk

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

EPS is set to fall by 19.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 187%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Sharjah Insurance Company P.S.C

Sharjah Insurance Company P.S.C's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was AED0.0458 in 2016, and the most recent fiscal year payment was AED0.07. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 19% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Sharjah Insurance Company P.S.C's Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 5 warning signs for Sharjah Insurance Company P.S.C (of which 2 can't be ignored!) you should know about. Is Sharjah Insurance Company P.S.C not quite the opportunity you were looking for? Why not check out 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.