Arab National Bank (TADAWUL:1080) stock is about to trade ex-dividend in 3 days. You can purchase shares before the 31st of March in order to receive the dividend, which the company will pay on the 12th of April.
Arab National Bank's upcoming dividend is ر.س0.40 a share, following on from the last 12 months, when the company distributed a total of ر.س1.00 per share to shareholders. Looking at the last 12 months of distributions, Arab National Bank has a trailing yield of approximately 4.8% on its current stock price of SAR20.7. 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 Arab National Bank can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Arab National Bank paying out a modest 36% of its earnings.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Arab National Bank's earnings per share have fallen at approximately 6.9% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last seven years, Arab National Bank has lifted its dividend by approximately 7.6% a year on average.
The Bottom Line
Has Arab National Bank got what it takes to maintain its dividend payments? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. We're unconvinced on the company's merits, and think there might be better opportunities out there.
So if you want to do more digging on Arab National Bank, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 1 warning sign with Arab National Bank and understanding them should be part of your investment process.
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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