Do These 3 Checks Before Buying Abdullah Al-Othaim Markets Company (TADAWUL:4001) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Abdullah Al-Othaim Markets Company (TADAWUL:4001) is about to go ex-dividend in just 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Abdullah Al-Othaim Markets' shares on or after the 28th of May will not receive the dividend, which will be paid on the 12th of June.

The company's next dividend payment will be ر.س0.15 per share. Last year, in total, the company distributed ر.س0.60 to shareholders. Looking at the last 12 months of distributions, Abdullah Al-Othaim Markets has a trailing yield of approximately 5.0% on its current stock price of ر.س12.10. If you buy this business for its dividend, you should have an idea of whether Abdullah Al-Othaim Markets's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Abdullah Al-Othaim Markets

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. Abdullah Al-Othaim Markets distributed an unsustainably high 110% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. Abdullah Al-Othaim Markets paid out more free cash flow than it generated - 157%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Cash is slightly more important than profit from a dividend perspective, but given Abdullah Al-Othaim Markets's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Abdullah Al-Othaim Markets, with earnings per share up 7.6% on average over the last five years. Earnings per share have been growing steadily, although a payout ratio this high suggests future growth is likely to slow, and the dividend may also be at risk of a cut if business enters a downturn.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Abdullah Al-Othaim Markets has increased its dividend at approximately 23% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Abdullah Al-Othaim Markets an attractive dividend stock, or better left on the shelf? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Abdullah Al-Othaim Markets.

With that being said, if you're still considering Abdullah Al-Othaim Markets as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 3 warning signs for Abdullah Al-Othaim Markets (1 is a bit concerning) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.