Najran Cement's (TADAWUL:3002) Dividend Is Being Reduced To SAR0.25

Najran Cement Company's (TADAWUL:3002) dividend is being reduced from last year's payment covering the same period to SAR0.25 on the 1st of January. The dividend yield will be in the average range for the industry at 3.9%.

Check out our latest analysis for Najran Cement

Najran Cement Is Paying Out More Than It Is Earning

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Najran Cement was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 92% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

EPS is set to fall by 14.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 102%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from SAR1.00 total annually to SAR0.50. Doing the maths, this is a decline of about 6.7% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Najran Cement has grown earnings per share at 24% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Najran Cement's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Najran Cement is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Najran Cement has 3 warning signs (and 1 which is potentially serious) we think you should know about. Is Najran Cement 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.