Is National Takaful Company (Watania) P.J.S.C. (ADX:WATANIA) An Attractive Dividend Stock?

Today we'll take a closer look at National Takaful Company (Watania) P.J.S.C. (ADX:WATANIA) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

National Takaful Company (Watania) P.J.S.C yields a solid 6.6%, although it has only been paying for two years. It's certainly an attractive yield, but readers are likely curious about its staying power. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Explore this interactive chart for our latest analysis on National Takaful Company (Watania) P.J.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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, National Takaful Company (Watania) P.J.S.C paid out 43% of its profit as dividends. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.

Remember, you can always get a snapshot of National Takaful Company (Watania) P.J.S.C's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. During the past two-year period, the first annual payment was د.إ0.05 in 2019, compared to د.إ0.06 last year. This works out to be a compound annual growth rate (CAGR) of approximately 9.5% a year over that time.

National Takaful Company (Watania) P.J.S.C has been growing its dividend at a decent rate, and the payments have been stable despite the short payment history. This is a positive start.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see National Takaful Company (Watania) P.J.S.C has grown its earnings per share at 70% per annum over the past five years. With high earnings per share growth in recent times and a modest payout ratio, we think this is an attractive combination if earnings can be reinvested to generate 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. Firstly, we like that National Takaful Company (Watania) P.J.S.C has a low and conservative payout ratio. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. National Takaful Company (Watania) P.J.S.C has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

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. As an example, we've identified 2 warning signs for National Takaful Company (Watania) P.J.S.C that you should be aware of before investing.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding 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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