Saudi Telecom's (TADAWUL:7010) Dividend Will Be ر.س1.00

The board of Saudi Telecom Company (TADAWUL:7010) has announced that it will pay a dividend of ر.س1.00 per share on the 31st of May. This means the annual payment will be 3.4% of the current stock price, which is lower than the industry average.

View our latest analysis for Saudi Telecom

Saudi Telecom's Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. 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 265% 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.

The next year is set to see EPS grow by 8.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.

Saudi Telecom Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from ر.س2.00 to ر.س4.00. 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

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 4.9% 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. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Saudi Telecom's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Saudi Telecom's payments, as there could be some issues with sustaining them into the future. While Saudi Telecom is earning enough to cover the payments, the cash flows are lacking. We don't think Saudi Telecom is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Saudi Telecom that you should be aware of before investing. 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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