Saudi Telecom (TADAWUL:7010) Will Pay A Dividend Of SAR1.00

The board of Saudi Telecom Company (TADAWUL:7010) has announced that it will pay a dividend on the 25th of August, with investors receiving SAR1.00 per share. This means that the annual payment will be 3.9% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Saudi Telecom

Saudi Telecom's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Saudi Telecom's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 182% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 24.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

Saudi Telecom Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of SAR2.00 in 2012 to the most recent total annual payment of SAR4.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 4.8% per annum over the last five years, which admittedly is a bit slow. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

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 example, we've picked out 1 warning sign for Saudi Telecom that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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