Don't Buy United Development Company Q.P.S.C. (DSM:UDCD) For Its Next Dividend Without Doing These Checks

Readers hoping to buy United Development Company Q.P.S.C. (DSM:UDCD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 4th of March in order to receive the dividend, which the company will pay on the 1st of January.

United Development Company Q.P.S.C's next dividend payment will be ر.ق0.05 per share, and in the last 12 months, the company paid a total of ر.ق0.05 per share. Based on the last year's worth of payments, United Development Company Q.P.S.C stock has a trailing yield of around 3.4% on the current share price of QAR1.483. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether United Development Company Q.P.S.C has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for United Development Company Q.P.S.C

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether United Development Company Q.P.S.C generated enough free cash flow to afford its dividend. It paid out 79% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that United Development 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.

Click here to see how much of its profit United Development Company Q.P.S.C paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. United Development Company Q.P.S.C's earnings per share have fallen at approximately 20% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. United Development Company Q.P.S.C's dividend payments per share have declined at 7.7% per year on average over the past eight years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Has United Development Company Q.P.S.C got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least United Development Company Q.P.S.C's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in United Development Company Q.P.S.C despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that United Development Company Q.P.S.C is showing 2 warning signs in our investment analysis, and 1 of those is significant...

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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