Why It Might Not Make Sense To Buy Alandalus Property Company (TADAWUL:4320) For Its Upcoming 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 Alandalus Property Company (TADAWUL:4320) is about to go ex-dividend in just three 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Alandalus Property's shares on or after the 16th of April, you won't be eligible to receive the dividend, when it is paid on the 29th of April.

The company's next dividend payment will be ر.س0.25 per share, on the back of last year when the company paid a total of ر.س0.50 to shareholders. Based on the last year's worth of payments, Alandalus Property stock has a trailing yield of around 2.3% on the current share price of ر.س21.62. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Alandalus Property's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Alandalus Property 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 paid out 16% of its free cash flow as dividends last year, which is conservatively low.

View our latest analysis for Alandalus Property

Click here to see how much of its profit Alandalus Property 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. If earnings fall far enough, the company could be forced to cut its dividend. Alandalus Property 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Alandalus Property has seen its dividend decline 15% per annum on average over the past seven 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.

Get our latest analysis on Alandalus Property's balance sheet health here.

Final Takeaway

Should investors buy Alandalus Property for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Bottom line: Alandalus Property 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 Alandalus Property as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 3 warning signs for Alandalus Property (2 shouldn't be ignored!) that deserve your attention before investing in the shares.

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.