Raoom trading (TADAWUL:9529) Could Be A Buy For Its Upcoming Dividend

It looks like Raoom trading Company (TADAWUL:9529) is about to go ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Raoom trading's shares before the 25th of November to receive the dividend, which will be paid on the 3rd of December.

The company's upcoming dividend is ر.س0.75 a share, following on from the last 12 months, when the company distributed a total of ر.س2.75 per share to shareholders. Based on the last year's worth of payments, Raoom trading stock has a trailing yield of around 1.5% on the current share price of ر.س183.00. 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 Raoom trading has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Raoom trading

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 Raoom trading's payout ratio is modest, at just 42% of profit. A useful secondary check can be to evaluate whether Raoom trading generated enough free cash flow to afford its dividend. It paid out more than half (66%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Raoom trading 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Raoom trading has grown its earnings rapidly, up 44% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past three years, Raoom trading has increased its dividend at approximately 40% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Raoom trading? Earnings per share have grown at a nice rate in recent times and over the last year, Raoom trading paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Raoom trading for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Raoom trading (1 is a bit concerning!) that deserve your attention before investing in the shares.

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.