Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) Has Affirmed Its Dividend Of AED0.1029

Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) will pay a dividend of AED0.1029 on the 1st of January. Based on this payment, the dividend yield on the company's stock will be 5.9%, which is an attractive boost to shareholder returns.

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

Abu Dhabi National Oil Company for Distribution PJSC's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 102% of what it was earning and 93% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Over the next year, EPS is forecast to expand by 21.7%. If the dividend continues along recent trends, we estimate the payout ratio could reach 93%, which is on the higher side, but certainly still feasible.

Abu Dhabi National Oil Company for Distribution PJSC'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. Since 2018, the annual payment back then was AED0.0588, compared to the most recent full-year payment of AED0.206. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Abu Dhabi National Oil Company for Distribution PJSC has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.4% per year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

Abu Dhabi National Oil Company for Distribution PJSC's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.