Dividend paying stocks like Qatar Islamic Bank (Q.P.S.C.) (DSM:QIBK) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested 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 high yield and a long history of paying dividends is an appealing combination for Qatar Islamic Bank (Q.P.S.C.). It would not be a surprise to discover that many investors buy it for the dividends. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we’ll go through this below.
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Table of Contents
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Qatar Islamic Bank (Q.P.S.C.) paid out 43% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.
Consider getting our latest analysis on Qatar Islamic Bank (Q.P.S.C.)’s financial position here.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Qatar Islamic Bank (Q.P.S.C.)’s dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past ten-year period, the first annual payment was ر.ق0.60 in 2010, compared to ر.ق0.53 last year. This works out to be a decline of approximately 1.3% per year over that time.
We struggle to make a case for buying Qatar Islamic Bank (Q.P.S.C.) for its dividend, given that payments have shrunk over the past ten years.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. It’s good to see Qatar Islamic Bank (Q.P.S.C.) has been growing its earnings per share at 12% a year over the past five years. A company paying out less than a quarter of its earnings as dividends, and growing earnings at more than 10% per annum, looks to be right in the cusp of its growth phase. At the right price, we might be interested.
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 Qatar Islamic Bank (Q.P.S.C.) has a low and conservative payout ratio. That said, we were glad to see it growing earnings and paying a fairly consistent dividend. Qatar Islamic Bank (Q.P.S.C.) fits all of our criteria, and we think there are a lot of positives to it from a dividend perspective.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 4 Qatar Islamic Bank (Q.P.S.C.) analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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This article by Simply Wall St is general in nature. 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.
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