Should You Buy Sumou Real Estate Company (TADAWUL:4323) For Its Upcoming Dividend?

Sumou Real Estate Company (TADAWUL:4323) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Sumou Real Estate's shares on or after the 16th of September will not receive the dividend, which will be paid on the 30th of September.

The company's upcoming dividend is ر.س0.50 a share, following on from the last 12 months, when the company distributed a total of ر.س1.00 per share to shareholders. Looking at the last 12 months of distributions, Sumou Real Estate has a trailing yield of approximately 2.4% on its current stock price of ر.س41.40. 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 Sumou Real Estate can afford its dividend, and if the dividend could grow.

See our latest analysis for Sumou Real Estate

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sumou Real Estate paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 22% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Sumou Real Estate paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Sumou Real Estate earnings per share are up 9.6% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, four years ago, Sumou Real Estate has lifted its dividend by approximately 19% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has Sumou Real Estate got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Sumou Real Estate is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Sumou Real Estate is halfway there. There's a lot to like about Sumou Real Estate, and we would prioritise taking a closer look at it.

While it's tempting to invest in Sumou Real Estate for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Sumou Real Estate and you should be aware of this before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.