Kingdom Holding (TADAWUL:4280) Could Be A Buy For Its Upcoming Dividend

It looks like Kingdom Holding Company (TADAWUL:4280) is about to go ex-dividend in the next three days. The ex-dividend date is commonly two business days 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 at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Kingdom Holding investors that purchase the stock on or after the 2nd of October will not receive the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is ر.س0.07 a share, following on from the last 12 months, when the company distributed a total of ر.س0.28 per share to shareholders. Looking at the last 12 months of distributions, Kingdom Holding has a trailing yield of approximately 3.6% on its current stock price of ر.س7.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Its dividend payout ratio is 83% 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. We'd be worried about the risk of a drop in earnings.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

View our latest analysis for Kingdom Holding

Click here to see how much of its profit Kingdom Holding 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Kingdom Holding's earnings have been skyrocketing, up 26% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kingdom Holding's dividend payments per share have declined at 11% per year on average over the past five years, which is uninspiring. Kingdom Holding 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.

To Sum It Up

Has Kingdom Holding got what it takes to maintain its dividend payments? Earnings per share are growing nicely, and Kingdom Holding is paying out a percentage of its earnings that is around the average for dividend-paying stocks. We think this is a pretty attractive combination, and would be interested in investigating Kingdom Holding more closely.

So while Kingdom Holding looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Kingdom Holding has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.