Banque Saudi Fransi (TADAWUL:1050) Is Increasing Its Dividend To ر.س0.75

Banque Saudi Fransi's (TADAWUL:1050) dividend will be increasing to ر.س0.75 on 4th of August. This will take the annual payment to 3.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Banque Saudi Fransi

Banque Saudi Fransi's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Banque Saudi Fransi was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 18.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was ر.س0.60, compared to the most recent full-year payment of ر.س1.70. This means that it has been growing its distributions at 11% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Banque Saudi Fransi's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Banque Saudi Fransi's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Banque Saudi Fransi (1 is significant!) that you should be aware of before investing. Is Banque Saudi Fransi not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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