Just Three Days Till Eastern Province Cement Company (TADAWUL:3080) Will Be Trading Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Eastern Province Cement Company (TADAWUL:3080) is about to go ex-dividend in just 3 days. The ex-dividend date is one business day before a company's record date, 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 two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Eastern Province Cement's shares before the 16th of September to receive the dividend, which will be paid on the 3rd of October.

The company's next dividend payment will be ر.س0.60 per share. Last year, in total, the company distributed ر.س1.60 to shareholders. Based on the last year's worth of payments, Eastern Province Cement stock has a trailing yield of around 4.9% on the current share price of ر.س32.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Eastern Province Cement can afford its dividend, and if the dividend could grow.

See our latest analysis for Eastern Province Cement

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. Eastern Province Cement paid out 63% of its earnings to investors last year, a normal payout level for most businesses. 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. Eastern Province Cement paid out more free cash flow than it generated - 133%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Eastern Province Cement's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Eastern Province Cement's ability to maintain its dividend.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Eastern Province Cement's earnings have been skyrocketing, up 26% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Eastern Province Cement's dividend payments per share have declined at 7.5% per year on average over the past 10 years, which is uninspiring. Eastern Province Cement is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Is Eastern Province Cement worth buying for its dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 133% of its cashflow, which is uncomfortably high. All things considered, we are not particularly enthused about Eastern Province Cement from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Eastern Province Cement, you should know about the other risks facing this business. Our analysis shows 2 warning signs for Eastern Province Cement that we strongly recommend you have a look at before investing in the company.

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.