Could Al Khaleej Takaful Insurance Company Q.P.S.C. (DSM:AKHI) be an attractive dividend share to own for the long haul?
Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
A slim 2.5% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Al Khaleej Takaful Insurance Company Q.P.S.C could have potential. Some simple analysis can reduce the risk of holding Al Khaleej Takaful Insurance Company Q.P.S.C for its dividend, and we’ll focus on the most important aspects below.
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax.
Looking at the data, we can see that 40% of Al Khaleej Takaful Insurance Company Q.P.S.C’s profits were paid out as dividends in the last 12 months. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.
Remember, you can always get a snapshot of Al Khaleej Takaful Insurance Company Q.P.S.C’s latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Al Khaleej Takaful Insurance Company Q.P.S.C’s dividend payments.
The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was ر.ق0.2 in 2010, compared to ر.ق0.05 last year. Dividend payments have fallen sharply, down 70% over that time.
A shrinking dividend over a 10-year period is not ideal, and we’d be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.
Dividend Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it’s even more important to see if EPS are growing. Al Khaleej Takaful Insurance Company Q.P.S.C’s EPS have fallen by approximately 16% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business.
Dividends are about stability, and Al Khaleej Takaful Insurance Company Q.P.S.C’s earnings per share, which support the dividend, have been anything but stable.
Conclusion
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing.
Firstly, we like that Al Khaleej Takaful Insurance Company Q.P.S.C has a low and conservative payout ratio. Earnings per share are down, and Al Khaleej Takaful Insurance Company Q.P.S.C’s dividend has been cut at least once in the past, which is disappointing. In summary, we’re unenthused by Al Khaleej Takaful Insurance Company Q.P.S.C as a dividend stock. It’s not that we think it is a bad company; it simply falls short of our criteria in some key areas.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company.
For instance, we’ve picked out 1 warning sign for Al Khaleej Takaful Insurance Company Q.P.S.C that investors should take into consideration. We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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Source Simply Wall St