Saudi Basic Industries Corporation (TADAWUL:2010) will increase its dividend from last year's comparable payment on the 2nd of October to SAR2.25. Based on this payment, the dividend yield for the company will be 4.5%, which is fairly typical for the industry.
Saudi Basic Industries' Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend was quite easily covered by Saudi Basic Industries' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to fall by 13.7%. If the dividend continues along recent trends, we estimate the payout ratio could be 60%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of SAR5.00 in 2012 to the most recent total annual payment of SAR4.50. This works out to be a decline of approximately 1.0% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth May Be Hard To Achieve
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. 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. Growth of 4.4% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.
Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. 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.
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 picked out 1 warning sign for Saudi Basic Industries that investors should know about before committing capital to this stock. 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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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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