Does It Make Sense To Buy Qatar Industrial Manufacturing Company Q.P.S.C. (DSM:QIMD) For Its Yield?

Dividend paying stocks like Qatar Industrial Manufacturing Company Q.P.S.C. (DSM:QIMD) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

With Qatar Industrial Manufacturing Company Q.P.S.C yielding 5.2% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. Some simple research can reduce the risk of buying Qatar Industrial Manufacturing Company Q.P.S.C for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Qatar Industrial Manufacturing Company 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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 82% of Qatar Industrial Manufacturing Company Q.P.S.C's profits were paid out as dividends in the last 12 months. Paying out a majority of its earnings limits the amount that can be reinvested in the business. This may indicate a commitment to paying a dividend, or a dearth of investment opportunities.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Unfortunately, while Qatar Industrial Manufacturing Company Q.P.S.C pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

Remember, you can always get a snapshot of Qatar Industrial Manufacturing Company Q.P.S.C's latest financial position, by checking our visualisation of its financial health.

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 Industrial Manufacturing Company 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. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was ر.ق0.1 in 2011, compared to ر.ق0.1 last year. Dividends per share have grown at approximately 1.7% per year over this time. Qatar Industrial Manufacturing Company Q.P.S.C's dividend payments have fluctuated, so it hasn't grown 1.7% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

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. Over the past five years, it looks as though Qatar Industrial Manufacturing Company Q.P.S.C's EPS have declined at around 12% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

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. First, we think Qatar Industrial Manufacturing Company Q.P.S.C has an acceptable payout ratio, although its dividend was not well covered by cashflow. Earnings per share are down, and Qatar Industrial Manufacturing Company Q.P.S.C's dividend has been cut at least once in the past, which is disappointing. There are a few too many issues for us to get comfortable with Qatar Industrial Manufacturing Company Q.P.S.C from a dividend perspective. Businesses can change, but we would struggle to identify why an investor should rely on this stock for their income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Qatar Industrial Manufacturing Company Q.P.S.C (2 are a bit concerning!) that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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