Arabian Centres Company (TADAWUL:4321) Pays A ر.س0.50 Dividend In Just Two Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Arabian Centres Company (TADAWUL:4321) is about to trade ex-dividend in the next two days. Ex-dividend means that investors that purchase the stock on or after the 5th of January will not receive this dividend, which will be paid on the 14th of January.

Arabian Centres's next dividend payment will be ر.س0.50 per share, and in the last 12 months, the company paid a total of ر.س1.00 per share. Calculating the last year's worth of payments shows that Arabian Centres has a trailing yield of 4.0% on the current share price of SAR25.05. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Arabian Centres

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Arabian Centres paid out 51% 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. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Arabian Centres's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Arabian Centres's 16% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Given that Arabian Centres has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Has Arabian Centres got what it takes to maintain its dividend payments? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Bottom line: Arabian Centres has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Arabian Centres despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, Arabian Centres has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.

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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.
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