Qassim Cement (TADAWUL:3040) Is Increasing Its Dividend To SAR1.30

Qassim Cement Company (TADAWUL:3040) will increase its dividend from last year's comparable payment on the 15th of September to SAR1.30. This makes the dividend yield about the same as the industry average at 4.9%.

See our latest analysis for Qassim Cement

Qassim Cement's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last dividend, Qassim Cement is earning enough to cover the payment, but then it makes up 306% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 54.4%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 84% which is a bit high but can definitely be sustainable.

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 dividend has gone from an annual total of SAR6.25 in 2014 to the most recent total annual payment of SAR2.60. This works out to be a decline of approximately 8.4% 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.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Although it's important to note that Qassim Cement's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

We should note that Qassim Cement has issued stock equal to 22% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Qassim Cement's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Qassim Cement's payments are rock solid. While Qassim Cement is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Qassim Cement that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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