Should Income Investors Look At Al-Dawaa Medical Services Company (TADAWUL:4163) Before Its Ex-Dividend?

It looks like Al-Dawaa Medical Services Company (TADAWUL:4163) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Al-Dawaa Medical Services' shares on or after the 11th of February, you won't be eligible to receive the dividend, when it is paid on the 25th of February.

The company's upcoming dividend is ر.س0.63 a share, following on from the last 12 months, when the company distributed a total of ر.س1.25 per share to shareholders. Last year's total dividend payments show that Al-Dawaa Medical Services has a trailing yield of 1.6% on the current share price of ر.س78.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Al-Dawaa Medical Services

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. Al-Dawaa Medical Services is paying out an acceptable 59% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 39% of its free cash flow as dividends, a comfortable payout level 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 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Al-Dawaa Medical Services's earnings per share have been growing at 13% a year for the past five years. Al-Dawaa Medical Services has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Al-Dawaa Medical Services's dividend payments per share have declined at 29% per year on average over the past two years, which is uninspiring. Al-Dawaa Medical Services is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Has Al-Dawaa Medical Services got what it takes to maintain its dividend payments? We like Al-Dawaa Medical Services's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

Wondering what the future holds for Al-Dawaa Medical Services? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.