It Might Not Be A Great Idea To Buy Qatar Fuel Company Q.P.S.C. ("WOQOD") (DSM:QFLS) For Its Next Dividend

Qatar Fuel Company Q.P.S.C. ("WOQOD") (DSM:QFLS) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Qatar Fuel Company Q.P.S.C. (WOQOD)'s shares before the 24th of July in order to be eligible for the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is ر.ق0.40 a share, following on from the last 12 months, when the company distributed a total of ر.ق1.20 per share to shareholders. Looking at the last 12 months of distributions, Qatar Fuel Company Q.P.S.C. (WOQOD) has a trailing yield of approximately 7.9% on its current stock price of ر.ق15.20. If you buy this business for its dividend, you should have an idea of whether Qatar Fuel Company Q.P.S.C. (WOQOD)'s dividend is reliable and sustainable. As a result, readers should always check whether Qatar Fuel Company Q.P.S.C. (WOQOD) has been able to grow its dividends, or if the dividend might be cut.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Qatar Fuel Company Q.P.S.C. (WOQOD) paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Qatar Fuel Company Q.P.S.C. (WOQOD) generated enough free cash flow to afford its dividend. Qatar Fuel Company Q.P.S.C. (WOQOD) paid out more free cash flow than it generated - 161%, 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.

Qatar Fuel Company Q.P.S.C. (WOQOD) 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.

As Qatar Fuel Company Q.P.S.C. (WOQOD)'s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Check out our latest analysis for Qatar Fuel Company Q.P.S.C. (WOQOD)

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. So we're not too excited that Qatar Fuel Company Q.P.S.C. (WOQOD)'s earnings are down 3.3% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Qatar Fuel Company Q.P.S.C. (WOQOD) has lifted its dividend by approximately 4.6% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Qatar Fuel Company Q.P.S.C. (WOQOD) is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Has Qatar Fuel Company Q.P.S.C. (WOQOD) got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (96%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Qatar Fuel Company Q.P.S.C. (WOQOD). Every company has risks, and we've spotted 1 warning sign for Qatar Fuel Company Q.P.S.C. (WOQOD) you should know about.

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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.