Is Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance (DFM:ASCANA) A Good Fit For Your Dividend Portfolio?

Could Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance (DFM:ASCANA) 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. 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.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance is a new dividend aristocrat in the making. It sure looks interesting on these metrics - but there's always more to the story. There are a few simple ways to reduce the risks of buying Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance!

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. Looking at the data, we can see that 52% of Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance's profits were paid out as dividends in the last 12 months. 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.

Consider getting our latest analysis on Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance's financial position 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. The first recorded dividend for Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance, in the last decade, was eight years ago. It's good to see that Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance 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 eight-year period, the first annual payment was د.إ0.1 in 2013, compared to د.إ0.1 last year. The dividend has shrunk at around 3.8% a year during that period. Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance's dividend hasn't shrunk linearly at 3.8% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance for its dividend, given that payments have shrunk over the past eight years.

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? It's good to see Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance has been growing its earnings per share at 37% a year over the past five years. With recent, rapid earnings per share growth and a payout ratio of 52%, this business looks like an interesting prospect if earnings are reinvested effectively.

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. Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance'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. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance out there.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Arabian Scandinavian Insurance Company (PLC) - Takaful - ASCANA Insurance has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

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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