There's A Lot To Like About Dubai Electricity and Water Authority (PJSC)'s (DFM:DEWA) Upcoming د.إ0.062 Dividend

Dubai Electricity and Water Authority (PJSC) (DFM:DEWA) is about to trade ex-dividend in the next 3 days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Dubai Electricity and Water Authority (PJSC)'s shares on or after the 17th of October will not receive the dividend, which will be paid on the 31st of October.

The company's upcoming dividend is د.إ0.062 a share, following on from the last 12 months, when the company distributed a total of د.إ0.12 per share to shareholders. Calculating the last year's worth of payments shows that Dubai Electricity and Water Authority (PJSC) has a trailing yield of 5.0% on the current share price of د.إ2.50. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Dubai Electricity and Water Authority (PJSC)

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Dubai Electricity and Water Authority (PJSC)'s payout ratio is modest, at just 41% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (87%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Dubai Electricity and Water Authority (PJSC)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Dubai Electricity and Water Authority (PJSC)'s earnings per share have risen 14% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Dubai Electricity and Water Authority (PJSC)'s dividend payments are effectively flat on where they were two years ago.

The Bottom Line

From a dividend perspective, should investors buy or avoid Dubai Electricity and Water Authority (PJSC)? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for Dubai Electricity and Water Authority (PJSC) and you should be aware of it before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.