Saudi Pharmaceutical Industries and Medical Appliances' (TADAWUL:2070) Dividend Is Being Reduced To ر.س0.60

Saudi Pharmaceutical Industries and Medical Appliances Corporation (TADAWUL:2070) has announced it will be reducing its dividend payable on the 1st of January to ر.س0.60. This payment takes the dividend yield to 1.8%, which only provides a modest boost to overall returns.

View our latest analysis for Saudi Pharmaceutical Industries and Medical Appliances

Saudi Pharmaceutical Industries and Medical Appliances' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

EPS is set to grow by 191.0% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 80%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Saudi Pharmaceutical Industries and Medical Appliances' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from ر.س1.00 in 2018 to the most recent annual payment of ر.س0.60. The dividend has fallen 40% over that period. 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 Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Saudi Pharmaceutical Industries and Medical Appliances' EPS has fallen by approximately 36% per year during the past five years. 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Saudi Pharmaceutical Industries and Medical Appliances' Dividend Doesn't Look Great

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Saudi Pharmaceutical Industries and Medical Appliances you should be aware of, and 2 of them don't sit too well with us. Is Saudi Pharmaceutical Industries and Medical Appliances not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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