Income Investors Should Know That Al Hammadi Holding Company (TADAWUL:4007) Goes Ex-Dividend Soon

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Al Hammadi Holding Company (TADAWUL:4007) is about to trade ex-dividend in the next two 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Al Hammadi Holding's shares before the 13th of August to receive the dividend, which will be paid on the 21st of August.

The company's next dividend payment will be ر.س0.35 per share, and in the last 12 months, the company paid a total of ر.س1.40 per share. Based on the last year's worth of payments, Al Hammadi Holding stock has a trailing yield of around 4.0% on the current share price of ر.س34.88. If you buy this business for its dividend, you should have an idea of whether Al Hammadi Holding's dividend is reliable and sustainable. So we need to investigate whether Al Hammadi Holding can afford its dividend, and if the dividend could grow.

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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. Al Hammadi Holding paid out 64% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Al Hammadi Holding generated enough free cash flow to afford its dividend. The company paid out 105% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While Al Hammadi Holding's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Al Hammadi Holding's ability to maintain its dividend.

See our latest analysis for Al Hammadi Holding

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Al Hammadi Holding's earnings have been skyrocketing, up 30% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Al Hammadi Holding has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Al Hammadi Holding an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Al Hammadi Holding paid out a much higher percentage of its free cash flow, which makes us uncomfortable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Al Hammadi Holding's dividend merits.

If you're not too concerned about Al Hammadi Holding's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 1 warning sign for Al Hammadi Holding and you should be aware of it before buying any shares.

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.