Stock Analysis

Is It Smart To Buy Al Rajhi Banking and Investment Corporation (TADAWUL:1120) Before It Goes Ex-Dividend?

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Readers hoping to buy Al Rajhi Banking and Investment Corporation (TADAWUL:1120) 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 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 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. Accordingly, Al Rajhi Banking and Investment investors that purchase the stock on or after the 22nd of March will not receive the dividend, which will be paid on the 2nd of April.

The company's next dividend payment will be ر.س1.25 per share, on the back of last year when the company paid a total of ر.س1.25 to shareholders. Based on the last year's worth of payments, Al Rajhi Banking and Investment has a trailing yield of 1.8% on the current stock price of SAR70.6. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Al Rajhi Banking and Investment has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Al Rajhi Banking and Investment

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Al Rajhi Banking and Investment paying out a modest 29% of its earnings.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

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

SASE:1120 Historic Dividend March 18th 2023

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Al Rajhi Banking and Investment's earnings per share have been growing at 13% a year for the past five years.

Al Rajhi Banking and Investment also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Al Rajhi Banking and Investment dividends are largely the same as they were 10 years ago.

Final Takeaway

From a dividend perspective, should investors buy or avoid Al Rajhi Banking and Investment? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Al Rajhi Banking and Investment ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

In light of that, while Al Rajhi Banking and Investment has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Al Rajhi Banking and Investment has 1 warning sign 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.

Valuation is complex, but we're helping make it simple.

Find out whether Al Rajhi Banking and Investment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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