Don't Race Out To Buy Saudi Industrial Investment Group (TADAWUL:2250) Just Because It's Going Ex-Dividend

Saudi Industrial Investment Group (TADAWUL:2250) is about to trade ex-dividend in the next three days. You can purchase shares before the 3rd of January in order to receive the dividend, which the company will pay on the 1st of January.

Saudi Industrial Investment Group's next dividend payment will be ر.س0.50 per share, and in the last 12 months, the company paid a total of ر.س1.00 per share. Looking at the last 12 months of distributions, Saudi Industrial Investment Group has a trailing yield of approximately 3.6% on its current stock price of SAR27.5. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Saudi Industrial Investment Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Saudi Industrial Investment Group paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 36% of its free cash flow in the past year.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Saudi Industrial Investment Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Saudi Industrial Investment Group has lifted its dividend by approximately 7.2% a year on average.

Remember, you can always get a snapshot of Saudi Industrial Investment Group's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Is Saudi Industrial Investment Group an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Saudi Industrial Investment Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Saudi Industrial Investment Group and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 2 warning signs for Saudi Industrial Investment Group (of which 1 can't be ignored!) you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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