Baazeem Trading (TADAWUL:4051) Has Announced A Dividend Of SAR0.70

The board of Baazeem Trading Company (TADAWUL:4051) has announced that it will pay a dividend on the 6th of September, with investors receiving SAR0.70 per share. Based on this payment, the dividend yield on the company's stock will be 3.3%, which is an attractive boost to shareholder returns.

View our latest analysis for Baazeem Trading

Baazeem Trading's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Baazeem Trading was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Earnings per share could rise by 3.5% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Baazeem Trading's Dividend Has Lacked Consistency

Looking back, Baazeem Trading's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of SAR1.70 in 2017 to the most recent total annual payment of SAR2.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Baazeem Trading has only grown its earnings per share at 3.5% per annum over the past five years. The company has been growing at a pretty soft 3.5% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Baazeem Trading 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. As an example, we've identified 1 warning sign for Baazeem Trading that you should be aware of before investing. Is Baazeem Trading 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.