Dividend Investors: Don't Be Too Quick To Buy Alamar Foods Company (TADAWUL:6014) For Its Upcoming Dividend

Alamar Foods Company (TADAWUL:6014) stock is about to trade ex-dividend in day or so. 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. In other words, investors can purchase Alamar Foods' shares before the 21st of August in order to be eligible for the dividend, which will be paid on the 3rd of September.

The company's upcoming dividend is ر.س0.50 a share, following on from the last 12 months, when the company distributed a total of ر.س2.10 per share to shareholders. Looking at the last 12 months of distributions, Alamar Foods has a trailing yield of approximately 2.6% on its current stock price of ر.س79.60. If you buy this business for its dividend, you should have an idea of whether Alamar Foods'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 Alamar Foods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Alamar Foods distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. Fortunately, it paid out only 31% of its free cash flow in the past year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Alamar Foods fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Alamar Foods's 26% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Alamar Foods's dividend payments per share have declined at 21% per year on average over the past two years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Is Alamar Foods an attractive dividend stock, or better left on the shelf? It's not a great combination to see a company with earnings in decline and paying out 112% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Alamar Foods and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 3 warning signs for Alamar Foods (1 is concerning!) that deserve your attention before investing in the shares.

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.