Don't Buy Qatari Investors Group Q.P.S.C. (DSM:QIGD) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Qatari Investors Group Q.P.S.C. (DSM:QIGD) is about to go ex-dividend in just 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Qatari Investors Group Q.P.S.C's shares on or after the 11th of March will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be ر.ق0.13 per share. Last year, in total, the company distributed ر.ق0.13 to shareholders. Calculating the last year's worth of payments shows that Qatari Investors Group Q.P.S.C has a trailing yield of 7.8% on the current share price of ر.ق1.673. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Qatari Investors Group Q.P.S.C

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. Qatari Investors Group Q.P.S.C paid out 98% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Qatari Investors Group Q.P.S.C paid out more free cash flow than it generated - 110%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Qatari Investors Group Q.P.S.C's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Qatari Investors Group Q.P.S.C paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Qatari Investors Group Q.P.S.C, with earnings per share up 2.2% on average over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Qatari Investors Group Q.P.S.C has delivered 5.7% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Qatari Investors Group Q.P.S.C? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. It's not that we think Qatari Investors Group Q.P.S.C is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Qatari Investors Group Q.P.S.C and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 1 warning sign for Qatari Investors Group Q.P.S.C that we recommend you consider before investing in the business.

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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.