Theeb Rent A Car's (TADAWUL:4261) Shareholders Will Receive A Bigger Dividend Than Last Year

Theeb Rent A Car Company (TADAWUL:4261) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of December to SAR0.54. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.

Check out our latest analysis for Theeb Rent A Car

Theeb Rent A Car's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Theeb Rent A Car was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 60.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Theeb Rent A Car's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the dividend has gone from SAR1.02 total annually to SAR1.64. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Theeb Rent A Car Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Theeb Rent A Car has impressed us by growing EPS at 7.6% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Theeb Rent A Car's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Theeb Rent A Car is earning enough to cover the payments, the cash flows are lacking. We don't think Theeb Rent A Car 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. However, there are other things to consider for investors when analysing stock performance. To that end, Theeb Rent A Car has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Theeb Rent A Car not quite the opportunity you were looking for? Why not check out 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.