Here's Why We're Wary Of Buying Industries Qatar Q.P.S.C's (DSM:IQCD) For Its Upcoming Dividend

Industries Qatar Q.P.S.C. (DSM:IQCD) stock is about to trade ex-dividend in 3 days. If you purchase the stock on or after the 2nd of March, you won't be eligible to receive this dividend, when it is paid on the 1st of January.

Industries Qatar Q.P.S.C's next dividend payment will be ر.ق0.33 per share, on the back of last year when the company paid a total of ر.ق0.33 to shareholders. Based on the last year's worth of payments, Industries Qatar Q.P.S.C has a trailing yield of 2.9% on the current stock price of QAR11.56. If you buy this business for its dividend, you should have an idea of whether Industries Qatar Q.P.S.C's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Industries Qatar Q.P.S.C

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year Industries Qatar Q.P.S.C paid out 101% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Industries Qatar Q.P.S.C paid out more free cash flow than it generated - 142%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Industries Qatar Q.P.S.C does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given Industries Qatar Q.P.S.C's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Industries Qatar Q.P.S.C's 15% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Industries Qatar Q.P.S.C's dividend payments per share have declined at 4.1% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Industries Qatar Q.P.S.C? Not only are earnings per share declining, but Industries Qatar Q.P.S.C is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Industries Qatar Q.P.S.C as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Industries Qatar Q.P.S.C that we strongly recommend you have a look at before investing in the company.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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