Saudi Telecom (TADAWUL:7010) Has Affirmed Its Dividend Of SAR0.40

The board of Saudi Telecom Company (TADAWUL:7010) has announced that it will pay a dividend on the 22nd of November, with investors receiving SAR0.40 per share. This payment means the dividend yield will be 4.0%, which is below the average for the industry.

Our analysis indicates that 7010 is potentially undervalued!

Saudi Telecom Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Saudi Telecom's dividend was only 70% of earnings, however it was paying out 143% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next 12 months is set to see EPS grow by 25.7%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 119%, which probably can't continue without putting some pressure on the balance sheet.

Saudi Telecom Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from SAR0.80 total annually to SAR1.60. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Saudi Telecom May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 4.4% per year. Saudi Telecom is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Saudi Telecom is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 1 warning sign for Saudi Telecom that investors need to be conscious of moving forward. 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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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.