Here is why we hesitate to buy Arab centers (TADAWUL: 4321) for its next dividend

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Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Company of Arab Centers (TADAWUL: 4321) is about to be ex-dividend in just 4 days. The ex-dividend date is one business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. It is important to know the ex-dividend date because any transaction in the share must have been settled by the registration date at the latest. This means that investors who buy shares of Arabian Centers from July 4 will not receive the dividend, which will be paid on July 15.

The company’s next dividend payment will be 0.75 .س per share, and over the past 12 months, the company has paid a total of 1.00 .س per share. Based on the value of last year’s payouts, shares of Arabian Centers have a rolling yield of around 4.8% over the current SAR26.1 share price. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

Check out our latest analysis for Arab centers

Dividends are usually paid out of the company’s profits, so if a company pays more than it earned, its dividend is usually at risk of being reduced. Arabian Centers donated 104% of its revenue, which is more than we’re comfortable with, barring extenuating circumstances. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we always need to check if the dividend is covered by cash flow. The good news is that she has only paid out 23% of her free cash flow in the past year.

It is disappointing that the dividend was not covered by earnings, but cash is more important from a dividend sustainability perspective, and Arabian Centers has fortunately generated enough cash to fund its dividend. Yet if the company repeatedly paid a dividend greater than its profits, we would be concerned. Extraordinarily few companies are able to persistently pay out a dividend in excess of their profits.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

SASE: 4321 Historic dividend June 29, 2021

Have profits and dividends increased?

Companies with declining profits are riskier for dividend shareholders. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. Arabian Centers’ earnings per share have fallen by around 16% per year over the past five years. Ultimately, when earnings per share declines, the size of the pie from which dividends can be paid declines.

Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Arabian Centers has seen its dividend fall by 17% per year on average over the past two years, which is not great to see. It’s never nice to watch profits and dividends plummet, but at least management has reduced the dividend rather than potentially risking the health of the company in an attempt to maintain it.

The bottom line

Does Arabian Centers have what it takes to maintain its dividend payments? It is not a good combination to see a company with declining profits and pay 104% of its profits, which could imply that the dividend may be reduced in the future. Still, the cash flow was much stronger, which makes us wonder if there are any significant timing issues in Arabian Centers’ cash flow, or if the company has aggressively depreciated certain assets. reducing his income. This is not an attractive combination from a dividend standpoint, and we are inclined to forgo this one for the time being.

However, if you are still interested in Arab centers and want to learn more, then it will be very helpful for you to know the risks that this stock faces. To this end, you should inquire about the 3 warning signs we spotted some with the Arabian Centers (including 2 which are a little unpleasant).

If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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