Don't Race Out To Buy Saudi Basic Industries Corporation (TADAWUL:2010) Just Because It's Going Ex-Dividend

Explore Saudi Basic Industries's Fair Values from the Community and select yours

It looks like Saudi Basic Industries Corporation (TADAWUL:2010) is about to go ex-dividend in the next 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Accordingly, Saudi Basic Industries investors that purchase the stock on or after the 20th of August will not receive the dividend, which will be paid on the 9th of September.

The company's next dividend payment will be ر.س1.50 per share, and in the last 12 months, the company paid a total of ر.س3.20 per share. Last year's total dividend payments show that Saudi Basic Industries has a trailing yield of 5.6% on the current share price of ر.س57.30. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Saudi Basic Industries can afford its dividend, and if the dividend could grow.

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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. Saudi Basic Industries's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Saudi Basic Industries didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the past year it paid out 140% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

View our latest analysis for Saudi Basic Industries

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Saudi Basic Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Saudi Basic Industries has seen its dividend decline 5.3% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

We update our analysis on Saudi Basic Industries every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Saudi Basic Industries an attractive dividend stock, or better left on the shelf? It's hard to get used to Saudi Basic Industries paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Saudi Basic Industries and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 1 warning sign for Saudi Basic Industries that you should be aware of before investing in their shares.

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.