Arab National Bank (TADAWUL:1080) Is Paying Out A Larger Dividend Than Last Year

The board of Arab National Bank (TADAWUL:1080) has announced that it will be increasing its dividend on the 18th of July to ر.س0.50. This makes the dividend yield 3.1%, which is above the industry average.

Check out our latest analysis for Arab National Bank

Arab National Bank's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Arab National Bank's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 30.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 53% by next year, which is in a pretty sustainable range.

Arab National Bank's Dividend Has Lacked Consistency

It's comforting to see that Arab National Bank has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The first annual payment during the last 8 years was ر.س0.60 in 2014, and the most recent fiscal year payment was ر.س0.90. This means that it has been growing its distributions at 5.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Arab National Bank has seen earnings per share falling at 4.8% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Arab National Bank's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Arab National Bank's payments are rock solid. While Arab National Bank is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Arab National Bank (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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