Is It Smart To Buy Al-Babtain Power and Telecommunications Company (TADAWUL:2320) Before It Goes Ex-Dividend?

Al-Babtain Power and Telecommunications Company (TADAWUL:2320) is about to trade ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Al-Babtain Power and Telecommunications' shares on or after the 3rd of April, you won't be eligible to receive the dividend, when it is paid on the 1st of January.

The company's next dividend payment will be ر.س1.00 per share. Last year, in total, the company distributed ر.س1.00 to shareholders. Last year's total dividend payments show that Al-Babtain Power and Telecommunications has a trailing yield of 2.2% on the current share price of ر.س46.00. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Al-Babtain Power and Telecommunications's payout ratio is modest, at just 43% of profit.

View our latest analysis for Al-Babtain Power and Telecommunications

Click here to see how much of its profit Al-Babtain Power and Telecommunications paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Al-Babtain Power and Telecommunications's earnings have been skyrocketing, up 26% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Al-Babtain Power and Telecommunications has lifted its dividend by approximately 4.1% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Has Al-Babtain Power and Telecommunications got what it takes to maintain its dividend payments? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Al-Babtain Power and Telecommunications appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

While it's tempting to invest in Al-Babtain Power and Telecommunications for the dividends alone, you should always be mindful of the risks involved. For example - Al-Babtain Power and Telecommunications has 3 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.