Emirates Telecommunications Group Company PJSC (ADX:ETISALAT) 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. Meaning, you will need to purchase Emirates Telecommunications Group Company PJSC’s shares before the 5th of August to receive the dividend, which will be paid on the 1st of January.
The company’s upcoming dividend is د.إ0.40 a share, following on from the last 12 months, when the company distributed a total of د.إ0.80 per share to shareholders. Looking at the last 12 months of distributions, Emirates Telecommunications Group Company PJSC has a trailing yield of approximately 3.5% on its current stock price of AED22.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Emirates Telecommunications Group Company PJSC has been able to grow its dividends, or if the dividend might be cut.
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. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We’d be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (79%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It’s positive to see that Emirates Telecommunications Group Company PJSC’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we’re not overly excited about Emirates Telecommunications Group Company PJSC’s flat earnings over the past five years. We’d take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A high payout ratio of 76% generally happens when a company can’t find better uses for the cash. Combined with slim earnings growth in the past few years, Emirates Telecommunications Group Company PJSC could be signalling that its future growth prospects are thin.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Emirates Telecommunications Group Company PJSC has lifted its dividend by approximately 3.9% a year on average.
To Sum It Up
Is Emirates Telecommunications Group Company PJSC an attractive dividend stock, or better left on the shelf? Emirates Telecommunications Group Company PJSC has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don’t appear unsustainable. In summary, it’s hard to get excited about Emirates Telecommunications Group Company PJSC from a dividend perspective.
However if you’re still interested in Emirates Telecommunications Group Company PJSC as a potential investment, you should definitely consider some of the risks involved with Emirates Telecommunications Group Company PJSC. In terms of investment risks, we’ve identified 2 warning signs with Emirates Telecommunications Group Company PJSC and understanding them should be part of your investment process.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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