Al Hammadi Holding (TADAWUL:4007) Could Be A Buy For Its Upcoming Dividend

It looks like Al Hammadi Holding Company (TADAWUL:4007) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Meaning, you will need to purchase Al Hammadi Holding's shares before the 18th of November to receive the dividend, which will be paid on the 1st of December.

The company's next dividend payment will be ر.س0.35 per share. Last year, in total, the company distributed ر.س1.40 to shareholders. Looking at the last 12 months of distributions, Al Hammadi Holding has a trailing yield of approximately 3.6% on its current stock price of ر.س39.35. 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.

Check out our latest analysis for Al Hammadi Holding

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Al Hammadi Holding paid out 69% of its earnings to investors last year, a normal payout level for most businesses. 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 paid out more than half (60%) of its free cash flow in the past year, which is within an average range 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?

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 Al Hammadi Holding's earnings have been skyrocketing, up 29% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Al Hammadi Holding could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Al Hammadi Holding has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Al Hammadi Holding worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Al Hammadi Holding's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 69% and 60% respectively. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Al Hammadi Holding has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Al Hammadi Holding has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.