Key Things To Watch Out For If You Are After The Commercial Bank (P.S.Q.C.)'s (DSM:CBQK) 2.3% Dividend

Could The Commercial Bank (P.S.Q.C.) (DSM:CBQK) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. 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 slim 2.3% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Commercial Bank (P.S.Q.C.) could have potential. Some simple analysis can reduce the risk of holding Commercial Bank (P.S.Q.C.) for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Commercial Bank (P.S.Q.C.)!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Commercial Bank (P.S.Q.C.) paid out 38% of its profit as dividends, over the trailing twelve month period. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

Remember, you can always get a snapshot of Commercial Bank (P.S.Q.C.)'s latest financial position, by checking our visualisation of its financial health.

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 Commercial Bank (P.S.Q.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 ر.ق0.5 in 2011, compared to ر.ق0.1 last year. This works out to a decline of approximately 80% over that time.

We struggle to make a case for buying Commercial Bank (P.S.Q.C.) for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's not great to see that Commercial Bank (P.S.Q.C.)'s have fallen at approximately 6.5% over the past five years. A modest decline in earnings per share is not great to see, but it doesn't automatically make a dividend unsustainable. Still, we'd vastly prefer to see EPS growth when researching dividend stocks.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're glad to see Commercial Bank (P.S.Q.C.) has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Commercial Bank (P.S.Q.C.) out there.

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. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. See if the 5 analysts are forecasting a turnaround in our free collection of analyst estimates here.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. 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.
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