Should Income Investors Look At Gas Arabian Services Company (TADAWUL:9528) Before Its Ex-Dividend?

Readers hoping to buy Gas Arabian Services Company (TADAWUL:9528) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Gas Arabian Services' shares before the 15th of May to receive the dividend, which will be paid on the 28th of May.

The company's next dividend payment will be ر.س0.30 per share, on the back of last year when the company paid a total of ر.س0.22 to shareholders. Based on the last year's worth of payments, Gas Arabian Services has a trailing yield of 2.2% on the current stock price of ر.س10.08. 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 Gas Arabian Services has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Gas Arabian Services

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Gas Arabian Services paid out a comfortable 43% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 137% of its free cash flow as dividends, which is uncomfortably 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 Gas Arabian Services'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 Gas Arabian Services to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Gas Arabian Services paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Gas Arabian Services's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Given that Gas Arabian Services has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Should investors buy Gas Arabian Services for the upcoming dividend? Earnings per share have been effectively flat over this time, and Gas Arabian Services's paying out less than half its profits and 137% of its cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So if you want to do more digging on Gas Arabian Services, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 3 warning signs for Gas Arabian Services (2 are significant!) that deserve your attention before investing in the 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.