Don't Race Out To Buy Al Mahhar Holding Company Q.P.S.C. (DSM:MHAR) Just Because It's Going Ex-Dividend

Readers hoping to buy Al Mahhar Holding Company Q.P.S.C. (DSM:MHAR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a 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 Al Mahhar Holding Company Q.P.S.C's shares before the 14th of April in order to receive the dividend, which the company will pay on the 1st of January.

The company's next dividend payment will be ر.ق0.11 per share, and in the last 12 months, the company paid a total of ر.ق0.11 per share. Last year's total dividend payments show that Al Mahhar Holding Company Q.P.S.C has a trailing yield of 4.8% on the current share price of ر.ق2.298. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Al Mahhar Holding Company Q.P.S.C has been able to grow its dividends, or if the dividend might be cut.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Al Mahhar Holding Company Q.P.S.C paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Al Mahhar Holding Company Q.P.S.C generated enough free cash flow to afford its dividend. Al Mahhar Holding Company Q.P.S.C paid out more free cash flow than it generated - 180%, 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.

While Al Mahhar Holding Company Q.P.S.C'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. Cash is king, as they say, and were Al Mahhar Holding Company Q.P.S.C to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Al Mahhar Holding Company Q.P.S.C

Click here to see how much of its profit Al Mahhar Holding Company Q.P.S.C paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Al Mahhar Holding Company Q.P.S.C's 24% per annum decline in earnings in the past three years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Unfortunately Al Mahhar Holding Company Q.P.S.C has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Is Al Mahhar Holding Company Q.P.S.C worth buying for its dividend? Al Mahhar Holding Company Q.P.S.C had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Al Mahhar Holding Company Q.P.S.C. For example, we've found 2 warning signs for Al Mahhar Holding Company Q.P.S.C that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.