Saudia Dairy & Foodstuff Company (TADAWUL:2270) Stock Goes Ex-Dividend In Just One Day
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 Saudia Dairy & Foodstuff Company (TADAWUL:2270) is about to go ex-dividend in just day or two. 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Saudia Dairy & Foodstuff's shares before the 20th of September to receive the dividend, which will be paid on the 7th of October.
The company's upcoming dividend is ر.س5.00 a share, following on from the last 12 months, when the company distributed a total of ر.س16.00 per share to shareholders. Looking at the last 12 months of distributions, Saudia Dairy & Foodstuff has a trailing yield of approximately 7.9% on its current stock price of ر.س203.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Saudia Dairy & Foodstuff 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. Saudia Dairy & Foodstuff is paying out an acceptable 62% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 166% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
While Saudia Dairy & Foodstuff's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Saudia Dairy & Foodstuff's ability to maintain its dividend.
View 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Saudia Dairy & Foodstuff earnings per share are up 8.3% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Saudia Dairy & Foodstuff has increased its dividend at approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Saudia Dairy & Foodstuff for the upcoming dividend? Saudia Dairy & Foodstuff is paying out a reasonable percentage of its income and an uncomfortably high 166% of its cash flow as dividends. At least earnings per share have been growing steadily. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of Saudia Dairy & Foodstuff don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for Saudia Dairy & Foodstuff and you should be aware of them 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.