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Does Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) Have A Place In Your Dividend Portfolio? – Simply Wall St News

Dividend paying stocks like Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) 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.

Abu Dhabi National Oil Company for Distribution PJSC pays a 6.4% dividend yield, and has been paying dividends for the past two years. A 6.4% yield does look good. Could the short payment history hint at future dividend growth? During the year, the company also conducted a buyback equivalent to around 17% of its market capitalisation. Some simple research can reduce the risk of buying Abu Dhabi National Oil Company for Distribution PJSC for its dividend – read on to learn more.

Explore this interactive chart for our latest analysis on Abu Dhabi National Oil Company for Distribution PJSC!

ADX:ADNOCDIST Historical Dividend Yield, January 4th 2020
ADX:ADNOCDIST Historical Dividend Yield, January 4th 2020

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. Abu Dhabi National Oil Company for Distribution PJSC paid out 55% of its profit as dividends, over the trailing twelve month period. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business – which could be good or bad.

We also measure dividends paid against a company’s levered free cash flow, to see if enough cash was generated to cover the dividend. Abu Dhabi National Oil Company for Distribution PJSC paid out 70% of its free cash flow last year, which is acceptable, but is starting to limit the amount of earnings that can be reinvested into the business. It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

While the above analysis focuses on dividends relative to a company’s earnings, we do note Abu Dhabi National Oil Company for Distribution PJSC’s strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on Abu Dhabi National Oil Company for Distribution PJSC every 24 hours, so you can always get our latest analysis of its financial health, here.

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. It has only been paying dividends for a few short years, and the dividend has already been cut at least once. This is one income stream we’re not ready to live on. During the past two-year period, the first annual payment was د.إ0.059 in 2018, compared to د.إ0.19 last year. Dividends per share have grown at approximately 80% per year over this time. The dividends haven’t grown at precisely 80% every year, but this is a useful way to average out the historical rate of growth.

It’s not great to see that the payment has been cut in the past. We’re generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

Dividend Growth Potential

With a relatively unstable dividend, it’s even more important to evaluate if earnings per share (EPS) are growing – it’s not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. It’s good to see Abu Dhabi National Oil Company for Distribution PJSC has been growing its earnings per share at 11% a year over the past five years. Abu Dhabi National Oil Company for Distribution PJSC’s earnings per share have grown rapidly in recent years, although more than half of its profits are being paid out as dividends, which makes us wonder if the company has a limited number of reinvestment opportunities in its business.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, we think Abu Dhabi National Oil Company for Distribution PJSC is paying out an acceptable percentage of its cashflow and profit. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than Abu Dhabi National Oil Company for Distribution PJSC out there.

Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 6 analysts we track are forecasting for Abu Dhabi National Oil Company for Distribution PJSC for free with public analyst estimates for the company.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

If you spot an error that warrants correction, please contact the editor at [email protected]. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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