SABIC Agri-Nutrients Company (TADAWUL:2020) Is About To Go Ex-Dividend, And It Pays A 5.2% 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. Accordingly, SABIC Agri-Nutrients investors that purchase the stock on or after the 5th of February will not receive the dividend, which will be paid on the 17th of February.

The company's upcoming dividend is ر.س3.00 a share, following on from the last 12 months, when the company distributed a total of ر.س6.00 per share to shareholders. Based on the last year's worth of payments, SABIC Agri-Nutrients stock has a trailing yield of around 5.2% on the current share price of ر.س115.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for SABIC Agri-Nutrients

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. It paid out 85% 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that SABIC Agri-Nutrients's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see SABIC Agri-Nutrients's earnings per share have risen 11% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. SABIC Agri-Nutrients has seen its dividend decline 0.6% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Is SABIC Agri-Nutrients 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 SABIC Agri-Nutrients's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 85% and 68% respectively. All things considered, we are not particularly enthused about SABIC Agri-Nutrients from a dividend perspective.

While it's tempting to invest in SABIC Agri-Nutrients for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for SABIC Agri-Nutrients 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.