Stock Analysis

Does National General Insurance Co. (P.J.S.C.) (DFM:NGI) Have A Place In Your Dividend Stock Portfolio?

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DFM:NGI
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Is National General Insurance Co. (P.J.S.C.) (DFM:NGI) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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 high yield and a long history of paying dividends is an appealing combination for National General Insurance (P.J.S.C.). We'd guess that plenty of investors have purchased it for the income. Some simple analysis can reduce the risk of holding National General Insurance (P.J.S.C.) for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on National General Insurance (P.J.S.C.)!

historic-dividend
DFM:NGI Historic Dividend February 4th 2021

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. National General Insurance (P.J.S.C.) paid out 103% of its profit as dividends, over the trailing twelve month period. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

We update our data on National General Insurance (P.J.S.C.) every 24 hours, so you can always get our latest analysis of its financial health, here.

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. For the purpose of this article, we only scrutinise the last decade of National General Insurance (P.J.S.C.)'s dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was د.إ0.1 in 2011, compared to د.إ0.1 last year. The dividend has shrunk at a rate of less than 1% a year over this period.

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 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. National General Insurance (P.J.S.C.)'s EPS are effectively flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation.

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. First, it's not great to see how much of its earnings are being paid as dividends. Earnings per share are down, and National General Insurance (P.J.S.C.)'s dividend has been cut at least once in the past, which is disappointing. Using these criteria, National General Insurance (P.J.S.C.) looks suboptimal from a dividend investment perspective.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come accross 4 warning signs for National General Insurance (P.J.S.C.) you should be aware of, and 1 of them is a bit unpleasant.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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