Read This Before Considering Riyadh Cables Group Company (TADAWUL:4142) For Its Upcoming ر.س2.00 Dividend

Riyadh Cables Group Company (TADAWUL:4142) stock is about to trade ex-dividend in three days. 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. Therefore, if you purchase Riyadh Cables Group's shares on or after the 20th of April, you won't be eligible to receive the dividend, when it is paid on the 7th of May.

The company's next dividend payment will be ر.س2.00 per share. Last year, in total, the company distributed ر.س3.00 to shareholders. Based on the last year's worth of payments, Riyadh Cables Group has a trailing yield of 3.1% on the current stock price of ر.س129.80. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Riyadh Cables Group paid out 64% of its earnings to investors last year, a normal payout level for most businesses. 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. Dividends consumed 66% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

See our latest analysis for Riyadh Cables Group

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Riyadh Cables Group has grown its earnings rapidly, up 33% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Riyadh Cables Group could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past two years, Riyadh Cables Group has increased its dividend at approximately 63% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Riyadh Cables Group worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Riyadh Cables Group is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. To summarise, Riyadh Cables Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Riyadh Cables Group has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Riyadh Cables Group and you should be aware of these before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.