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

By
Simply Wall St
Published
April 10, 2022
DSM:ZHCD
Source: Shutterstock

Zad Holding Company Q.P.S.C.'s (DSM:ZHCD) dividend is being reduced to ر.ق0.65 on the 1st of January. The yield is still above the industry average at 3.3%.

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

Zad Holding Company Q.P.S.C Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Zad Holding Company Q.P.S.C's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 109% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 2.5% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 98%, which probably can't continue without starting to put some pressure on the balance sheet.

historic-dividend
DSM:ZHCD Historic Dividend April 10th 2022

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

Looking back, Zad Holding Company Q.P.S.C's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The first annual payment during the last 9 years was ر.ق0.33 in 2013, and the most recent fiscal year payment was ر.ق0.65. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Zad Holding Company Q.P.S.C has only grown its earnings per share at 2.5% per annum over the past five years. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Zad Holding Company Q.P.S.C's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Zad Holding Company Q.P.S.C that you should be aware of before investing. Is Zad Holding Company Q.P.S.C not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.