Ras Al Khaimah National Insurance Company PSC (ADX:RAKNIC) will pay a dividend of د.إ0.08 on May 14. This payout means the dividend yield will be 2.3%, which is below the industry average.
See our latest analysis for Ras Al Khaimah National Insurance Company PSC
Ras Al Khaimah National Insurance Company PSC pays more than it earns
The dividend yield is a little low, but the sustainability of payouts is also an important part of valuing an income stock. Prior to this announcement, Ras Al Khaimah National Insurance Company PSC was paying out 93% of its profits, but a relatively low 40% of free cash flow. Since the dividend just pays out cash to shareholders, we care more about the cash payout ratio from which we can see that there is plenty left to reinvest in the business.
EPS is expected to fall 14.9% over the next 12 months if recent trends continue. Assuming the dividend continues to follow recent trends, we believe the payout ratio could reach 111%, which could put the dividend under pressure if earnings do not start to improve.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the past 10 years. Since 2012, the first annual payment was د.إ0.12, compared to the most recent annual payment of د.إ0.08. Doing the math, that’s a decline of about 4.3% per year. Falling dividends are generally not what we are looking for, as they may indicate that the company is facing some challenges.
The dividend has limited growth potential
Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. Ras Al Khaimah National Insurance Company PSC’s EPS has fallen by approximately 15% annually over the past five years. This sharp decline may indicate that the company is going through a difficult period, which could limit its ability to pay a larger dividend each year in the future.
Our thoughts on the Ras Al Khaimah National Insurance Company PSC dividend
Overall, it’s nice to see consistent dividend payout, but we believe that over the longer term, the current level of payout may be unsustainable. In the past, payments were volatile, but in the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the high end of income providing stocks.
Market movements testify to the valuation of a consistent dividend policy over a more unpredictable one. However, there are other things for investors to consider when analyzing stock performance. For example, we identified 1 warning sign for Ras Al Khaimah National Insurance Company PSC which you should be aware of before investing. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.