Abdullah Al-Othaim Markets (TADAWUL:4001) Will Pay A Smaller Dividend Than Last Year

Abdullah Al-Othaim Markets Company's (TADAWUL:4001) dividend is being reduced by 33% to ر.س2.00 per share on 22nd of September. However, the dividend yield of 4.3% is still a decent boost to shareholder returns.

See our latest analysis for Abdullah Al-Othaim Markets

Abdullah Al-Othaim Markets Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Abdullah Al-Othaim Markets' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 180% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next 12 months is set to see EPS grow by 34.9%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 134% over the next year.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was ر.س0.75 in 2011, and the most recent fiscal year payment was ر.س6.00. This means that it has been growing its distributions at 23% per annum over that time. Abdullah Al-Othaim Markets has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Abdullah Al-Othaim Markets' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Abdullah Al-Othaim Markets has grown earnings per share at 7.8% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Abdullah Al-Othaim Markets that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.
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