Zad Holding Company Q.P.S.C (DSM:ZHCD) Has Announced That Its Dividend Will Be Reduced To ر.ق0.65

March 27, 2022
  •  Updated
April 10, 2022
Source: Shutterstock

Zad Holding Company Q.P.S.C. (DSM:ZHCD) has announced it will be reducing its dividend payable on the 1st of January to ر.ق0.65. This means the annual payment is 3.8% of the current stock price, which is above the average for the industry.

View our latest analysis for Zad Holding Company Q.P.S.C

Zad Holding Company Q.P.S.C Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Zad Holding Company Q.P.S.C was paying out quite a large proportion of both earnings and cash flow, with the dividend being 107% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Earnings per share could rise by 2.5% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 100%, which probably can't continue without starting to put some pressure on the balance sheet.

DSM:ZHCD Historic Dividend March 27th 2022

Zad Holding Company Q.P.S.C's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2013, the dividend has gone from ر.ق0.33 to ر.ق0.64. This means that it has been growing its distributions at 7.5% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Zad Holding Company Q.P.S.C May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings has been rising at 2.5% per annum over the last five years, which admittedly is a bit slow. Slow growth and a high payout ratio could mean that Zad Holding Company Q.P.S.C has maxed out the amount that it has been able to pay to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 1 warning sign for Zad Holding Company Q.P.S.C that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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Zad Holding Company Q.P.S.C

Zad Holding Company Q.P.S.C. manufactures and distributes fast-moving-consumer-goods in Qatar and internationally.

Excellent balance sheet with questionable track record.