Saudia Dairy & Foodstuff's (TADAWUL:2270) Dividend Will Be SAR3.00

Saudia Dairy & Foodstuff Company's (TADAWUL:2270) investors are due to receive a payment of SAR3.00 per share on 23rd of January. Based on this payment, the dividend yield on the company's stock will be 2.6%, which is an attractive boost to shareholder returns.

See our latest analysis for Saudia Dairy & Foodstuff

Saudia Dairy & Foodstuff's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Saudia Dairy & Foodstuff's was paying out quite a large proportion of earnings and 94% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to rise by 83.9% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 44% which brings it into quite a comfortable range.

Saudia Dairy & Foodstuff Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of SAR3.00 in 2013 to the most recent total annual payment of SAR6.00. This means that it has been growing its distributions at 7.2% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Saudia Dairy & Foodstuff has seen earnings per share falling at 2.5% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Saudia Dairy & Foodstuff's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Saudia Dairy & Foodstuff that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.