Readers hoping to buy Response Plus Holding PJSC (ADX:RPM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days 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 can take two business days or more to settle. Thus, you can purchase Response Plus Holding PJSC's shares before the 6th of August in order to receive the dividend, which the company will pay on the 27th of August.
The company's next dividend payment will be د.إ0.06 per share. Last year, in total, the company distributed د.إ0.19 to shareholders. Last year's total dividend payments show that Response Plus Holding PJSC has a trailing yield of 9.0% on the current share price of د.إ2.11. If you buy this business for its dividend, you should have an idea of whether Response Plus Holding PJSC's dividend is reliable and sustainable. So we need to investigate whether Response Plus Holding PJSC can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Response Plus Holding PJSC paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. 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. Response Plus Holding PJSC paid out more free cash flow than it generated - 151%, 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.
Response Plus Holding PJSC paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Response Plus Holding PJSC to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for Response Plus Holding PJSC
Click here to see how much of its profit Response Plus Holding PJSC paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Response Plus Holding PJSC's earnings per share have plummeted approximately 76% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Response Plus Holding PJSC's dividend payments per share have declined at 21% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Final Takeaway
Is Response Plus Holding PJSC an attractive dividend stock, or better left on the shelf? Response Plus Holding PJSC had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Response Plus Holding PJSC despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 1 warning sign with Response Plus Holding PJSC and understanding them should be part of your investment process.
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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.