Saudia Dairy & Foodstuff Company (TADAWUL:2270) Is About To Go Ex-Dividend, And It Pays A 6.5% Yield

Readers hoping to buy Saudia Dairy & Foodstuff Company (TADAWUL:2270) 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Saudia Dairy & Foodstuff's shares on or after the 28th of September will not receive the dividend, which will be paid on the 14th of October.

The company's next dividend payment will be ر.س8.00 per share, and in the last 12 months, the company paid a total of ر.س18.00 per share. Based on the last year's worth of payments, Saudia Dairy & Foodstuff has a trailing yield of 6.5% on the current stock price of ر.س278.60. If you buy this business for its dividend, you should have an idea of whether Saudia Dairy & Foodstuff's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Saudia Dairy & Foodstuff is paying out an acceptable 61% of its profit, a common payout level among 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. The company paid out 99% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Saudia Dairy & Foodstuff 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 Saudia Dairy & Foodstuff to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Saudia Dairy & Foodstuff

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Saudia Dairy & Foodstuff's earnings per share have been growing at 14% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Saudia Dairy & Foodstuff has lifted its dividend by approximately 18% 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 Saudia Dairy & Foodstuff worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Saudia Dairy & Foodstuff paid out a much higher percentage of its free cash flow, which makes us uncomfortable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

However if you're still interested in Saudia Dairy & Foodstuff as a potential investment, you should definitely consider some of the risks involved with Saudia Dairy & Foodstuff. To help with this, we've discovered 1 warning sign for Saudia Dairy & Foodstuff that you should be aware of before investing in their 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.