We Wouldn't Be Too Quick To Buy Alamar Foods Company (TADAWUL:6014) Before It Goes Ex-Dividend

Alamar Foods Company (TADAWUL:6014) is about to trade ex-dividend in the next 3 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Alamar Foods' shares before the 15th of April in order to be eligible for the dividend, which will be paid on the 25th of April.

The company's next dividend payment will be ر.س0.40 per share, on the back of last year when the company paid a total of ر.س2.40 to shareholders. Based on the last year's worth of payments, Alamar Foods stock has a trailing yield of around 2.3% on the current share price of ر.س90.40. 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 Alamar Foods can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Alamar Foods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Alamar Foods paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Alamar Foods generated enough free cash flow to afford its dividend. It paid out more than half (50%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Alamar Foods's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Alamar Foods's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Alamar Foods has seen its dividend decline 21% per annum on average over the past two years, which is not great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Alamar Foods? Flat earnings per share and a high payout ratio are not what we like to see, although at least it paid out a lower percentage of its free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Alamar Foods despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Alamar Foods has 2 warning signs we think you should be aware of.

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.