Zahrat Al Waha For Trading's (TADAWUL:3007) Dividend Is Being Reduced To SAR0.45

Zahrat Al Waha For Trading Company's (TADAWUL:3007) dividend is being reduced by 67% to SAR0.45 per share on 19th of June, in comparison to last year's comparable payment of SAR1.35. This means the annual payment is 5.0% of the current stock price, which is above the average for the industry.

Our free stock report includes 4 warning signs investors should be aware of before investing in Zahrat Al Waha For Trading. Read for free now.

Zahrat Al Waha For Trading's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Zahrat Al Waha For Trading's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

If the company can't turn things around, EPS could fall by 72.8% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 44,266%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Zahrat Al Waha For Trading

Zahrat Al Waha For Trading's Dividend Has Lacked Consistency

Zahrat Al Waha For Trading has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2018, the annual payment back then was SAR0.667, compared to the most recent full-year payment of SAR1.35. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Zahrat Al Waha For Trading's EPS has declined at around 73% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year 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 payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Zahrat Al Waha For Trading is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Zahrat Al Waha For Trading has 4 warning signs (and 2 which make us uncomfortable) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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