Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Qatar Fuel Company Q.P.S.C. (“WOQOD”) (DSM:QFLS) is about to go ex-dividend in just 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Qatar Fuel Company Q.P.S.C. (WOQOD)’s shares before the 20th of February in order to be eligible for the dividend, which will be paid on the 1st of January.

The company’s next dividend payment will be ر.ق0.60 per share, on the back of last year when the company paid a total of ر.ق1.20 to shareholders. Looking at the last 12 months of distributions, Qatar Fuel Company Q.P.S.C. (WOQOD) has a trailing yield of approximately 7.8% on its current stock price of ر.ق15.40. If you buy this business for its dividend, you should have an idea of whether Qatar Fuel Company Q.P.S.C. (WOQOD)’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.

View our latest analysis for Qatar Fuel Company Q.P.S.C. (WOQOD)

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Qatar Fuel Company Q.P.S.C. (WOQOD) paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Qatar Fuel Company Q.P.S.C. (WOQOD) paid out more free cash flow than it generated – 160%, to be precise – last year, which we think is concerningly high. We’re curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Qatar Fuel Company Q.P.S.C. (WOQOD) does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given Qatar Fuel Company Q.P.S.C. (WOQOD)’s payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we’re not too excited that Qatar Fuel Company Q.P.S.C. (WOQOD)’s earnings are down 2.9% a year over the past five years.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Qatar Fuel Company Q.P.S.C. (WOQOD) has lifted its dividend by approximately 4.6% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Qatar Fuel Company Q.P.S.C. (WOQOD) is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is Qatar Fuel Company Q.P.S.C. (WOQOD) an attractive dividend stock, or better left on the shelf? It’s looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (94%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.

Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Qatar Fuel Company Q.P.S.C. (WOQOD). For example, we’ve found 1 warning sign for Qatar Fuel Company Q.P.S.C. (WOQOD) that we recommend you consider before investing in the business.

If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.