Saudi Basic Industries (TADAWUL:2010) Is Increasing Its Dividend To ر.س2.25

Saudi Basic Industries Corporation (TADAWUL:2010) will increase its dividend on the 2nd of October to ر.س2.25. This makes the dividend yield about the same as the industry average at 4.3%.

View our latest analysis for Saudi Basic Industries

Saudi Basic Industries' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite easily covered by Saudi Basic Industries' earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 3.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 54%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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. The first annual payment during the last 10 years was ر.س5.00 in 2012, and the most recent fiscal year payment was ر.س4.50. The dividend has shrunk at around 1.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Saudi Basic Industries May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 4.4% a year for the past five years, which isn't massive but still better than seeing them shrink. Saudi Basic Industries is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Saudi Basic Industries that investors should take into consideration. Is Saudi Basic Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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