Why It Might Not Make Sense To Buy Jarir Marketing Company (TADAWUL:4190) For Its Upcoming Dividend

Jarir Marketing Company (TADAWUL:4190) stock is about to trade ex-dividend in two days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Jarir Marketing's shares on or after the 12th of August will not receive the dividend, which will be paid on the 20th of August.

The company's next dividend payment will be ر.س0.16 per share, and in the last 12 months, the company paid a total of ر.س0.83 per share. Calculating the last year's worth of payments shows that Jarir Marketing has a trailing yield of 6.4% on the current share price of ر.س12.97. If you buy this business for its dividend, you should have an idea of whether Jarir Marketing's dividend is reliable and sustainable. So we need to investigate whether Jarir Marketing can afford its dividend, and if the dividend could grow.

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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 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. Jarir Marketing paid out more free cash flow than it generated - 116%, to be precise - last year, which we think is concerningly 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.

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

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Jarir Marketing's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Jarir Marketing has delivered 5.3% dividend growth per year on average over the past eight years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Jarir Marketing? Earnings per share are effectively flat, plus Jarir Marketing's dividend is not well covered by either earnings or cash flow, which is not great. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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. To help with this, we've discovered 1 warning sign for Jarir Marketing that you should be aware of before investing in their 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.