Saudi Electricity Company (TADAWUL:5110) Stock Goes Ex-Dividend In Just One Day

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Saudi Electricity Company (TADAWUL:5110) is about to trade ex-dividend in the next day or two. You can purchase shares before the 28th of April in order to receive the dividend, which the company will pay on the 16th of June.

Saudi Electricity's upcoming dividend is ر.س0.70 a share, following on from the last 12 months, when the company distributed a total of ر.س0.70 per share to shareholders. Based on the last year's worth of payments, Saudi Electricity has a trailing yield of 2.8% on the current stock price of SAR25.4. If you buy this business for its dividend, you should have an idea of whether Saudi Electricity's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Saudi Electricity

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Saudi Electricity distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Saudi Electricity generated enough free cash flow to afford its dividend. Luckily it paid out just 15% of its free cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Saudi Electricity fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Saudi Electricity earnings per share are up 6.3% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Saudi Electricity's dividend payments are effectively flat on where they were 10 years ago.

The Bottom Line

Should investors buy Saudi Electricity for the upcoming dividend? Earnings per share have grown modestly, and last year Saudi Electricity paid out a low percentage of its cash flow. However, its dividend payments were not well covered by profits. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

However if you're still interested in Saudi Electricity as a potential investment, you should definitely consider some of the risks involved with Saudi Electricity. Our analysis shows 3 warning signs for Saudi Electricity that we strongly recommend you have a look at before investing in the company.

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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