Don't Buy Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Abu Dhabi National Oil Company for Distribution PJSC investors that purchase the stock on or after the 5th of April will not receive the dividend, which will be paid on the 26th of April.

The company's next dividend payment will be د.إ0.10285 per share. Last year, in total, the company distributed د.إ0.21 to shareholders. Looking at the last 12 months of distributions, Abu Dhabi National Oil Company for Distribution PJSC has a trailing yield of approximately 5.6% on its current stock price of د.إ3.67. If you buy this business for its dividend, you should have an idea of whether Abu Dhabi National Oil Company for Distribution PJSC's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Abu Dhabi National Oil Company for Distribution PJSC

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Abu Dhabi National Oil Company for Distribution PJSC paid out 99% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Abu Dhabi National Oil Company for Distribution PJSC generated enough free cash flow to afford its dividend. It paid out more than half (65%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Abu Dhabi National Oil Company for Distribution PJSC's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Abu Dhabi National Oil Company for Distribution PJSC, with earnings per share up 4.1% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Abu Dhabi National Oil Company for Distribution PJSC has increased its dividend at approximately 23% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Abu Dhabi National Oil Company for Distribution PJSC? While earnings per share have been growing slowly, Abu Dhabi National Oil Company for Distribution PJSC is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. Bottom line: Abu Dhabi National Oil Company for Distribution PJSC has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Abu Dhabi National Oil Company for Distribution PJSC as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for Abu Dhabi National Oil Company for Distribution PJSC that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.