Etihad Etisalat Company (TADAWUL:7020) Passed Our Checks, And It's About To Pay A ر.س0.90 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Etihad Etisalat Company (TADAWUL:7020) is about to trade ex-dividend in the next 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Etihad Etisalat's shares before the 22nd of September in order to be eligible for the dividend, which will be paid on the 6th of October.

The company's next dividend payment will be ر.س0.90 per share, and in the last 12 months, the company paid a total of ر.س1.45 per share. Based on the last year's worth of payments, Etihad Etisalat has a trailing yield of 2.8% on the current stock price of ر.س51.10. If you buy this business for its dividend, you should have an idea of whether Etihad Etisalat's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Etihad Etisalat

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Etihad Etisalat paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether Etihad Etisalat generated enough free cash flow to afford its dividend. Luckily it paid out just 24% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Etihad Etisalat's earnings have been skyrocketing, up 44% per annum for the past five years. Etihad Etisalat is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Etihad Etisalat's dividend payments per share have declined at 11% per year on average over the past 10 years, which is uninspiring. Etihad Etisalat is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Is Etihad Etisalat an attractive dividend stock, or better left on the shelf? It's great that Etihad Etisalat is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Etihad Etisalat has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.