National Gas and Industrialization (TADAWUL:2080) Will Pay A Larger Dividend Than Last Year At SAR1.10

The board of National Gas and Industrialization Company (TADAWUL:2080) has announced that it will be increasing its dividend by 10% on the 22nd of July to SAR1.10, up from last year's comparable payment of SAR1.00. Although the dividend is now higher, the yield is only 2.4%, which is below the industry average.

See our latest analysis for National Gas and Industrialization

National Gas and Industrialization's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, National Gas and Industrialization's dividend was only 64% of earnings, however it was paying out 264% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 10.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 61%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from SAR1.75 total annually to SAR2.00. This implies that the company grew its distributions at a yearly rate of about 1.3% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. National Gas and Industrialization has impressed us by growing EPS at 10% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On National Gas and Industrialization's Dividend

Overall, we always like to see the dividend being raised, but we don't think National Gas and Industrialization will make a great income stock. While National Gas and Industrialization is earning enough to cover the payments, the cash flows are lacking. We don't think National Gas and Industrialization is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 National Gas and Industrialization that investors should know about before committing capital to this stock. Is National Gas and Industrialization not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.