It Might Not Be A Great Idea To Buy Sahara International Petrochemical Company (TADAWUL:2310) For Its Next Dividend

Sahara International Petrochemical Company (TADAWUL:2310) is about to trade ex-dividend in the next three days. Ex-dividend means that investors that purchase the stock on or after the 27th of December will not receive this dividend, which will be paid on the 6th of January.

Sahara International Petrochemical's next dividend payment will be ر.س0.50 per share, and in the last 12 months, the company paid a total of ر.س0.50 per share. Based on the last year's worth of payments, Sahara International Petrochemical stock has a trailing yield of around 2.9% on the current share price of SAR17.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Sahara International Petrochemical

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. Sahara International Petrochemical reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Sahara International Petrochemical 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. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.

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. Sahara International Petrochemical 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. Sahara International Petrochemical has seen its dividend decline 5.8% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on Sahara International Petrochemical every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy Sahara International Petrochemical for the upcoming dividend? It's hard to get used to Sahara International Petrochemical paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Sahara International Petrochemical don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 2 warning signs for Sahara International Petrochemical (1 is potentially serious!) that deserve your attention before investing in the shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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