Dividend Investors: Don't Be Too Quick To Buy Qatar Electricity & Water Company Q.P.S.C. (DSM:QEWS) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Qatar Electricity & Water Company Q.P.S.C. (DSM:QEWS) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 9th of March will not receive this dividend, which will be paid on the 1st of January.

Qatar Electricity & Water Company Q.P.S.C's next dividend payment will be ر.ق0.63 per share, and in the last 12 months, the company paid a total of ر.ق0.78 per share. Looking at the last 12 months of distributions, Qatar Electricity & Water Company Q.P.S.C has a trailing yield of approximately 4.4% on its current stock price of QAR17.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Qatar Electricity & Water Company Q.P.S.C can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Qatar Electricity & Water Company Q.P.S.C

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Qatar Electricity & Water Company Q.P.S.C paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Qatar Electricity & Water Company Q.P.S.C generated enough free cash flow to afford its dividend. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Qatar Electricity & Water 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Qatar Electricity & Water Company Q.P.S.C's earnings per share have dropped 5.1% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Qatar Electricity & Water Company Q.P.S.C has delivered an average of 3.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Has Qatar Electricity & Water Company Q.P.S.C got what it takes to maintain its dividend payments? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Qatar Electricity & Water Company Q.P.S.C don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for Qatar Electricity & Water Company Q.P.S.C you should know about.

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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