Don't Race Out To Buy Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD) Just Because It's Going Ex-Dividend

Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Qatar National Cement Company (Q.P.S.C.)'s shares before the 18th of February in order to receive the dividend, which the company will pay on the 1st of January.

The company's next dividend payment will be ر.ق0.27 per share, on the back of last year when the company paid a total of ر.ق0.27 to shareholders. Based on the last year's worth of payments, Qatar National Cement Company (Q.P.S.C.) has a trailing yield of 6.9% on the current stock price of ر.ق3.929. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Qatar National Cement Company (Q.P.S.C.)

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Qatar National Cement Company (Q.P.S.C.) distributed an unsustainably high 110% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Qatar National Cement Company (Q.P.S.C.) paid out more free cash flow than it generated - 145%, 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.

Qatar National Cement Company (Q.P.S.C.) 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 National Cement Company (Q.P.S.C.)'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.

Click here to see how much of its profit Qatar National Cement Company (Q.P.S.C.) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Qatar National Cement Company (Q.P.S.C.)'s earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Qatar National Cement Company (Q.P.S.C.) has seen its dividend decline 1.1% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Has Qatar National Cement Company (Q.P.S.C.) got what it takes to maintain its dividend payments? It's been unable to generate earnings growth, yet is paying out an uncomfortably high percentage of both its profits (110%) and cash flow (145%) as dividends. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Qatar National Cement Company (Q.P.S.C.).

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 National Cement Company (Q.P.S.C.). Every company has risks, and we've spotted 1 warning sign for Qatar National Cement Company (Q.P.S.C.) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.