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 three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Etihad Etisalat investors that purchase the stock on or after the 24th of May will not receive the dividend, which will be paid on the 1st of January.
The company's next dividend payment will be ر.س0.50 per share, and in the last 12 months, the company paid a total of ر.س0.50 per share. Based on the last year's worth of payments, Etihad Etisalat has a trailing yield of 1.5% on the current stock price of SAR32.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Etihad Etisalat's payout ratio is modest, at just 44% of profit.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Etihad Etisalat has grown its earnings rapidly, up 64% a year 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Etihad Etisalat's dividend payments per share have declined at 12% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Is Etihad Etisalat worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating Etihad Etisalat more closely.
On that note, you'll want to research what risks Etihad Etisalat is facing. Be aware that Etihad Etisalat is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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