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 four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Qatar Electricity & Water Company Q.P.S.C's shares before the 9th of September in order to be eligible for the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be ر.ق0.25 per share, and in the last 12 months, the company paid a total of ر.ق0.86 per share. Last year's total dividend payments show that Qatar Electricity & Water Company Q.P.S.C has a trailing yield of 5.4% on the current share price of ر.ق15.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Qatar Electricity & Water 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. Qatar Electricity & Water Company Q.P.S.C paid out more than half (63%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The company paid out 105% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Qatar Electricity & Water Company Q.P.S.C paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Qatar Electricity & Water Company Q.P.S.C's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 Electricity & Water Company Q.P.S.C's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Qatar Electricity & Water Company Q.P.S.C has increased its dividend at approximately 2.3% a year on average.

The Bottom Line

Has Qatar Electricity & Water Company Q.P.S.C got what it takes to maintain its dividend payments? It's not great to see earnings per share have been flat and that the company paid out an uncomfortably high percentage of its cash flow over the past year. Cash flows are typically more volatile than earnings, but this is still not what we like to see. Bottom line: Qatar Electricity & Water Company Q.P.S.C has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

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 Electricity & Water Company Q.P.S.C. For example, we've found 1 warning sign for Qatar Electricity & Water Company Q.P.S.C that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.