Don't Race Out To Buy Qassim Cement Company (TADAWUL:3040) Just Because It's Going Ex-Dividend

Qassim Cement Company (TADAWUL:3040) stock is about to trade ex-dividend in 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Qassim Cement's shares before the 9th of December in order to receive the dividend, which the company will pay on the 28th of December.

The company's upcoming dividend is ر.س0.80 a share, following on from the last 12 months, when the company distributed a total of ر.س3.20 per share to shareholders. Last year's total dividend payments show that Qassim Cement has a trailing yield of 7.5% on the current share price of ر.س42.48. If you buy this business for its dividend, you should have an idea of whether Qassim Cement's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Qassim Cement paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether Qassim Cement generated enough free cash flow to afford its dividend. Over the past year it paid out 126% of its free cash flow as dividends, which is uncomfortably 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.

Qassim Cement paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Qassim Cement's ability to maintain its dividend.

Check out our latest analysis for Qassim Cement

Click here to see how much of its profit Qassim Cement paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Qassim Cement's earnings per share have dropped 8.6% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Qassim Cement's dividend payments per share have declined at 6.1% per year on average over the past 10 years, which is uninspiring. 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

Has Qassim Cement got what it takes to maintain its dividend payments? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Qassim Cement is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Qassim Cement.

So if you're still interested in Qassim Cement despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 2 warning signs for Qassim Cement (1 is significant) you should be aware of.

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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.