Stock Analysis

Do These 3 Checks Before Buying Vodafone Qatar P.Q.S.C. (DSM:VFQS) For Its Upcoming Dividend

DSM:VFQS
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It looks like Vodafone Qatar P.Q.S.C. (DSM:VFQS) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 25th of February will not receive the dividend, which will be paid on the 1st of January.

Vodafone Qatar P.Q.S.C's upcoming dividend is ر.ق0.05 a share, following on from the last 12 months, when the company distributed a total of ر.ق0.05 per share to shareholders. Last year's total dividend payments show that Vodafone Qatar P.Q.S.C has a trailing yield of 3.3% on the current share price of QAR1.497. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Vodafone Qatar P.Q.S.C

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Vodafone Qatar P.Q.S.C distributed an unsustainably high 114% 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. Over the past year it paid out 113% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

As Vodafone Qatar P.Q.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 the company's payout ratio, plus analyst estimates of its future dividends.

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DSM:VFQS Historic Dividend February 20th 2021

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Vodafone Qatar P.Q.S.C has grown its earnings rapidly, up 66% a year for the past five years. Earnings per share are increasing at a rapid rate, but the company is paying out more than we are comfortable with, based on current earnings. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past seven years, Vodafone Qatar P.Q.S.C has increased its dividend at approximately 5.7% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Has Vodafone Qatar P.Q.S.C got what it takes to maintain its dividend payments? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Vodafone Qatar P.Q.S.C.

With that being said, if you're still considering Vodafone Qatar P.Q.S.C as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Vodafone Qatar P.Q.S.C that we recommend you consider before investing in the business.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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