Arabian Centres Company's (TADAWUL:4321) investors are due to receive a payment of SAR0.75 per share on 12th of February. The dividend yield will be 7.5% based on this payment which is still above the industry average.
Check out our latest analysis for Arabian Centres
Arabian Centres' Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Arabian Centres' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 84.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us comfortable with the sustainability of the dividend.
Arabian Centres' Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The annual payment during the last 3 years was SAR1.80 in 2020, and the most recent fiscal year payment was SAR1.50. Doing the maths, this is a decline of about 5.9% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Come By
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's not great to see that Arabian Centres' earnings per share has fallen at approximately 6.6% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Arabian Centres' payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.
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, Arabian Centres has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Arabian Centres 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.
About SASE:4321
Arabian Centres
Owns, develops, and operates lifestyle centers in the Kingdom of Saudi Arabia.
Undervalued with mediocre balance sheet.
