Don't Buy Jarir Marketing Company (TADAWUL:4190) For Its Next Dividend Without Doing These Checks

It looks like Jarir Marketing Company (TADAWUL:4190) is about to go ex-dividend in the next day or so. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Jarir Marketing's shares on or after the 9th of November will not receive the dividend, which will be paid on the 17th of November.

The company's next dividend payment will be ر.س2.05 per share. Last year, in total, the company distributed ر.س7.85 to shareholders. Looking at the last 12 months of distributions, Jarir Marketing has a trailing yield of approximately 3.8% on its current stock price of SAR204. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Jarir Marketing has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Jarir Marketing

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Jarir Marketing paid out 95% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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 past year it paid out 195% of its free cash flow as dividends, which is uncomfortably 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.

As Jarir Marketing's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Jarir Marketing earnings per share are up 3.8% per annum over the last five years. Minimal earnings growth, combined with concerningly high payout ratios suggests that Jarir Marketing is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.

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, nine years ago, Jarir Marketing has lifted its dividend by approximately 8.2% 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.

To Sum It Up

Is Jarir Marketing an attractive dividend stock, or better left on the shelf? Jarir Marketing is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not that we think Jarir Marketing is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Jarir Marketing and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 2 warning signs with Jarir Marketing (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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