Don't Race Out To Buy Jarir Marketing Company (TADAWUL:4190) Just Because It's Going Ex-Dividend

It looks like Jarir Marketing Company (TADAWUL:4190) is about to go ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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 Jarir Marketing's shares on or after the 8th of April, you won't be eligible to receive the dividend, when it is paid on the 16th of April.

The company's next dividend payment will be ر.س0.23 per share. Last year, in total, the company distributed ر.س0.83 to shareholders. Looking at the last 12 months of distributions, Jarir Marketing has a trailing yield of approximately 6.4% on its current stock price of ر.س13.00. If you buy this business for its dividend, you should have an idea of whether Jarir Marketing's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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 102% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The company paid out 95% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

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.

See our latest analysis for Jarir Marketing

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Jarir Marketing's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, Jarir Marketing has increased its dividend at approximately 5.4% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid Jarir Marketing? It's been unable to generate earnings growth, yet is paying out an uncomfortably high percentage of both its profits (102%) and cash flow (95%) as dividends. Bottom line: Jarir Marketing has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Jarir Marketing don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 1 warning sign for Jarir Marketing that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.