National Gas & Industerialization (TADAWUL:2080) Is Increasing Its Dividend To SAR0.85

The board of National Gas & Industerialization Co. (TADAWUL:2080) has announced that it will be paying its dividend of SAR0.85 on the 29th of September, an increased payment from last year's comparable dividend. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.

Check out our latest analysis for National Gas & Industerialization

National Gas & Industerialization's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, National Gas & Industerialization 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.

If the trend of the last few years continues, EPS will grow by 1.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 64% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SAR1.50 in 2012, and the most recent fiscal year payment was SAR1.70. This implies that the company grew its distributions at a yearly rate of about 1.3% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

National Gas & Industerialization May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, National Gas & Industerialization's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 1.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On National Gas & Industerialization's Dividend

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

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for National Gas & Industerialization that investors should take into consideration. 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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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.