Saudi Automotive Services Company (TADAWUL:4050) announced that it will increase its periodic dividend on January 1 to SAR0.50, which will be 67% higher than last year’s comparable payout amount of SAR0.30. Even though the dividend has increased, the yield is still quite low at just 2.2%.
See our latest analysis for Saudi Automotive Services
Saudi Automotive Services revenue easily covers distributions
It would be nice if the yield was higher, but we should also check whether higher levels of dividend payments would be sustainable. Prior to this announcement, Saudi Automotive Services’ dividend was comfortably covered by both cash flow and earnings. This indicates that a large portion of the profits are reinvested in the business, with the aim of fueling growth.
EPS is expected to grow 15.9% over the next year if recent trends continue. Assuming the dividend continues on recent trends, our estimates indicate that the payout ratio could be as high as 82%, which is certainly higher, but we wouldn’t necessarily say that’s unsustainable.
The company has a long history of dividends, but it doesn’t look good with the cuts of the past. The dividend has increased from an annual total of SAR 0.375 in 2012 to the most recent total annual payment of SAR 0.75. This equates to a compound annual growth rate (CAGR) of approximately 7.2% per year during this period. We like to see dividends growing at a reasonable pace, but with at least a substantial reduction in payouts, we’re not sure this dividend stock would be ideal for someone who intends to live on income.
The dividend should increase
With a relatively unstable dividend, it is even more important to see if earnings per share increase. Saudi Automotive Services has seen EPS increase over the past five years, by 16% annually. Profits are on the rise and pay only a small portion of those profits to shareholders.
We really like the Saudi Automotive Services dividend
Overall, a dividend increase is always good, and we think Saudi Automotive Services is a strong income stock thanks to its growing track record and earnings. The company is easily earning enough to cover its dividend payments and it’s good to see that income translate into cash flow. All of these factors taken into account, we believe this has strong potential as a dividend-paying stock.
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 encountered 4 warning signs for Saudi Automotive Services you should know, and one of them makes us a little uneasy. Is Saudi Automotive Services not quite the opportunity you were looking for? Why not check out our selection of the best 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.
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