Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) Is Due To Pay A Dividend Of AED0.1029

Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) will pay a dividend of AED0.1029 on the 27th of October. This means the annual payment is 4.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Abu Dhabi National Oil Company for Distribution PJSC

Abu Dhabi National Oil Company for Distribution PJSC Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Abu Dhabi National Oil Company for Distribution PJSC's dividend was only 48% of earnings, however it was paying out 150% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next 12 months is set to see EPS grow by 1.6%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 103% over the next year.

Abu Dhabi National Oil Company for Distribution PJSC's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of AED0.0588 in 2018 to the most recent total annual payment of AED0.206. This works out to be a compound annual growth rate (CAGR) of approximately 37% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Abu Dhabi National Oil Company for Distribution PJSC has grown earnings per share at 8.5% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Abu Dhabi National Oil Company for Distribution PJSC's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Abu Dhabi National Oil Company for Distribution PJSC is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Abu Dhabi National Oil Company for Distribution PJSC has 4 warning signs (and 1 which is concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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