Looks like Saudi Automotive Services Company (TADAWUL:4050) is set to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. So, you can buy shares of Saudi Automotive Services before June 15 in order to receive the dividend, which the company will pay on January 1.
The company’s next dividend payment will be ر.س.0.25 per share, and over the past 12 months the company has paid a total of ر.س.0.75 per share. Calculating the value of last year’s payouts shows that Saudi Automotive Services has a 2.1% yield on the current share price of SAR 35.95. If you’re buying this company for its dividend, you should get an idea of the reliability and sustainability of the Saudi Automotive Services dividend. We therefore need to check whether dividend payments are covered and whether profits are increasing.
See our latest analysis for Saudi Automotive Services
Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Last year, Saudi Automotive Services paid out 96% of its profits as dividends to shareholders, suggesting that the dividend is not well covered by profits. A useful secondary check can be to assess whether Saudi Automotive Services has generated enough free cash flow to pay its dividend. It distributed 26% of its free cash flow as dividends, a comfortable level of distribution for most companies.
It’s good to see that even though Saudi Automotive Services’ dividends weren’t well covered by earnings, they are at least affordable from a cash flow perspective. Yet, if the company continues to pay out such a high percentage of its profits, the dividend could be at risk if business goes sour.
Click here to see how much of its profit Saudi Automotive Services has paid out over the past 12 months.
Have earnings and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If earnings fall enough, the company could be forced to cut its dividend. For this reason, we are pleased to see that Saudi Automotive Services’ earnings per share have increased by 13% per year over the past five years.
Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past nine years, Saudi Automotive Services has increased its dividend by about 8.0% per year on average. It’s encouraging to see the company increasing its dividends as earnings rise, suggesting at least some corporate interest in rewarding shareholders.
Should investors buy Saudi Automotive Services for the next dividend? It’s good to see earnings per share rising and the low cash flow payout ratio, although we’re not comfortable with Saudi Automotive Services paying out such a high percentage of its earnings. In summary, it’s hard to get excited about Saudi Automotive Services from a dividend perspective.
Although it is tempting to invest in Saudi Automotive Services for the dividends alone, you should always be aware of the risks involved. We have identified 3 warning signs with Saudi Automotive Services (at least 1 which we don’t like too much), and understanding them should be part of your investment process.
If you are looking for strong dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.