Know This Before Buying Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD) For Its Dividend

Is Qatar National Cement Company (Q.P.S.C.) (DSM:QNCD) 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 popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, Qatar National Cement Company (Q.P.S.C.) likely looks attractive to investors, given its 4.4% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 88% of Qatar National Cement Company (Q.P.S.C.)'s profits were paid out as dividends in the last 12 months. It's paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Qatar National Cement Company (Q.P.S.C.) paid out 60% of its free cash flow last year, which is acceptable, but is starting to limit the amount of earnings that can be reinvested into the business. It's positive to see that Qatar National Cement Company (Q.P.S.C.)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

While the above analysis focuses on dividends relative to a company's earnings, we do note Qatar National Cement Company (Q.P.S.C.)'s strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of Qatar National Cement Company (Q.P.S.C.)'s latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Qatar National Cement Company (Q.P.S.C.)'s dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was ر.ق0.4 in 2011, compared to ر.ق0.2 last year. The dividend has shrunk at around 6.9% a year during that period. Qatar National Cement Company (Q.P.S.C.)'s dividend hasn't shrunk linearly at 6.9% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Qatar National Cement Company (Q.P.S.C.) for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Qatar National Cement Company (Q.P.S.C.)'s EPS have declined at around 20% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

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. First, we think Qatar National Cement Company (Q.P.S.C.) is paying out an acceptable percentage of its cashflow and profit. Earnings per share are down, and Qatar National Cement Company (Q.P.S.C.)'s dividend has been cut at least once in the past, which is disappointing. In summary, Qatar National Cement Company (Q.P.S.C.) has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.

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. To that end, Qatar National Cement Company (Q.P.S.C.) has 2 warning signs (and 1 which is concerning) we think you should know about.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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