Why It Might Not Make Sense To Buy Clean Life Company (TADAWUL:9581) For Its Upcoming Dividend

Readers hoping to buy Clean Life Company (TADAWUL:9581) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Clean Life's shares on or after the 2nd of September will not receive the dividend, which will be paid on the 17th of September.

The company's next dividend payment will be ر.س3.00 per share, and in the last 12 months, the company paid a total of ر.س6.00 per share. Calculating the last year's worth of payments shows that Clean Life has a trailing yield of 5.7% on the current share price of ر.س105.00. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. 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. Clean Life paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Check out our latest analysis for Clean Life

Click here to see how much of its profit Clean Life paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Clean Life's earnings per share have plummeted approximately 37% a year over the previous three years.

Unfortunately Clean Life has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Is Clean Life an attractive dividend stock, or better left on the shelf? Clean Life had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Bottom line: Clean Life has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Clean Life despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 4 warning signs for Clean Life (1 makes us a bit uncomfortable) 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.