Read This Before Buying Qatar National Bank (Q.P.S.C.) (DSM:QNBK) For Its Dividend

Is Qatar National Bank (Q.P.S.C.) (DSM:QNBK) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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 2.5% yield is nothing to get excited about, but investors probably think the long payment history suggests Qatar National Bank (Q.P.S.C.) has some staying power. Some simple analysis can reduce the risk of holding Qatar National Bank (Q.P.S.C.) for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Qatar National Bank (Q.P.S.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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Qatar National Bank (Q.P.S.C.) paid out 38% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

We update our data on Qatar National Bank (Q.P.S.C.) every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Qatar National Bank (Q.P.S.C.) has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was ر.ق0.2 in 2011, compared to ر.ق0.5 last year. Dividends per share have grown at approximately 11% per year over this time. The dividends haven't grown at precisely 11% every year, but this is a useful way to average out the historical rate of growth.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Qatar National Bank (Q.P.S.C.)'s earnings per share have been essentially flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation.

We'd also point out that Qatar National Bank (Q.P.S.C.) issued a meaningful number of new shares in the past year. Regularly issuing new shares can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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. Firstly, we like that Qatar National Bank (Q.P.S.C.) has a low and conservative payout ratio. Earnings per share are down, and Qatar National Bank (Q.P.S.C.)'s dividend has been cut at least once in the past, which is disappointing. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Qatar National Bank (Q.P.S.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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Qatar National Bank (Q.P.S.C.) that investors should take into consideration.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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