We Wouldn't Be Too Quick To Buy Jarir Marketing Company (TADAWUL:4190) Before It Goes Ex-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 Jarir Marketing Company (TADAWUL:4190) is about to go ex-dividend in just two days. Investors can purchase shares before the 23rd of March in order to be eligible for this dividend, which will be paid on the 31st of March.

Jarir Marketing's upcoming dividend is ر.س2.35 a share, following on from the last 12 months, when the company distributed a total of ر.س7.85 per share to shareholders. Based on the last year's worth of payments, Jarir Marketing stock has a trailing yield of around 4.5% on the current share price of SAR173. If you buy this business for its dividend, you should have an idea of whether Jarir Marketing's dividend is reliable and sustainable. As a result, readers should always check whether Jarir Marketing has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Jarir Marketing

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. Jarir Marketing paid out 93% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Jarir Marketing generated enough free cash flow to afford its dividend. The company paid out 91% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Cash is slightly more important than profit from a dividend perspective, but given Jarir Marketing's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Jarir Marketing, with earnings per share up 5.9% on average over the last five years. Earnings per share have been growing steadily, although a payout ratio this high suggests future growth is likely to slow, and the dividend may also be at risk of a cut if business enters a downturn.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last eight years, Jarir Marketing has lifted its dividend by approximately 9.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Jarir Marketing worth buying for its dividend? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Jarir Marketing. For example - Jarir Marketing has 1 warning sign we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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