Don't Race Out To Buy Saudi Vitrified Clay Pipe co. (TADAWUL:2360) Just Because It's Going Ex-Dividend

Readers hoping to buy Saudi Vitrified Clay Pipe co. (TADAWUL:2360) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 1st of December, you won't be eligible to receive this dividend, when it is paid on the 14th of December.

Saudi Vitrified Clay Pipe's next dividend payment will be ر.س1.00 per share. Last year, in total, the company distributed ر.س1.00 to shareholders. Based on the last year's worth of payments, Saudi Vitrified Clay Pipe stock has a trailing yield of around 1.5% on the current share price of SAR66.2. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Saudi Vitrified Clay Pipe

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Saudi Vitrified Clay Pipe paid out 105% of its profits as dividends to shareholders, suggesting the dividend is not well covered by 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. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Saudi Vitrified Clay Pipe's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Saudi Vitrified Clay Pipe paid out over the last 12 months.

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 Vitrified Clay Pipe's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 32% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Saudi Vitrified Clay Pipe has seen its dividend decline 10% 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.

To Sum It Up

Should investors buy Saudi Vitrified Clay Pipe for the upcoming dividend? Earnings per share have been in decline, which is not encouraging. Additionally, Saudi Vitrified Clay Pipe is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Bottom line: Saudi Vitrified Clay Pipe has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Saudi Vitrified Clay Pipe as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 2 warning signs for Saudi Vitrified Clay Pipe (1 makes us a bit uncomfortable) you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you decide to trade Saudi Vitrified Clay Pipe, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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