Is Doha Insurance Group Q.P.S.C.'s (DSM:DOHI) 4.7% Dividend Sustainable?

Is Doha Insurance Group Q.P.S.C. (DSM:DOHI) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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 Doha Insurance Group Q.P.S.C yielding 4.7% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. We'd guess that plenty of investors have purchased it for the income. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

Explore this interactive chart for our latest analysis on Doha Insurance Group 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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Doha Insurance Group Q.P.S.C paid out 74% of its profit as dividends, over the trailing twelve month period. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

We update our data on Doha Insurance Group Q.P.S.C every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Doha Insurance Group Q.P.S.C's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was ر.ق0.2 in 2011, compared to ر.ق0.08 last year. This works out to be a decline of approximately 7.5% per year over that time. Doha Insurance Group Q.P.S.C's dividend has been cut sharply at least once, so it hasn't fallen by 7.5% every year, but this is a decent approximation of the long term change.

We struggle to make a case for buying Doha Insurance Group Q.P.S.C for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. It's not great to see that Doha Insurance Group Q.P.S.C's have fallen at approximately 2.6% over the past five years. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.

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. Doha Insurance Group Q.P.S.C's payout ratio is within an average range for most market participants. Earnings per share are down, and Doha Insurance Group Q.P.S.C's dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think Doha Insurance Group Q.P.S.C may not be an ideal dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Doha Insurance Group Q.P.S.C (1 is significant!) that you should be aware of before investing.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding 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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