SABIC Agri-Nutrients Company (TADAWUL:2020) Is About To Go Ex-Dividend, And It Pays A 5.3% Yield

Readers hoping to buy SABIC Agri-Nutrients Company (TADAWUL:2020) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day 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 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. This means that investors who purchase SABIC Agri-Nutrients' shares on or after the 4th of July will not receive the dividend, which will be paid on the 22nd of July.

The company's next dividend payment will be ر.س3.00 per share. Last year, in total, the company distributed ر.س6.00 to shareholders. Based on the last year's worth of payments, SABIC Agri-Nutrients stock has a trailing yield of around 5.3% on the current share price of ر.س112.80. 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.

View our latest analysis for SABIC Agri-Nutrients

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether SABIC Agri-Nutrients generated enough free cash flow to afford its dividend. SABIC Agri-Nutrients paid out more free cash flow than it generated - 157%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

SABIC Agri-Nutrients does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

SABIC Agri-Nutrients paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were SABIC Agri-Nutrients to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, SABIC Agri-Nutrients's earnings per share have been growing at 12% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SABIC Agri-Nutrients's dividend payments per share have declined at 4.6% per year on average over the past 10 years, which is uninspiring. SABIC Agri-Nutrients 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.

The Bottom Line

Is SABIC Agri-Nutrients worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note SABIC Agri-Nutrients 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 SABIC Agri-Nutrients's dividend merits.

With that being said, if dividends aren't your biggest concern with SABIC Agri-Nutrients, you should know about the other risks facing this business. Our analysis shows 2 warning signs for SABIC Agri-Nutrients and you should be aware of these before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com