SAL Saudi Logistics Services Company (TADAWUL:4263) is about to trade ex-dividend in the next 3 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase SAL Saudi Logistics Services' shares before the 10th of November to receive the dividend, which will be paid on the 24th of November.
The company's next dividend payment will be ر.س2.17 per share. Last year, in total, the company distributed ر.س6.54 to shareholders. Based on the last year's worth of payments, SAL Saudi Logistics Services stock has a trailing yield of around 4.0% on the current share price of ر.س163.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 75% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Over the last year, it paid out more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that SAL Saudi Logistics Services's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for SAL Saudi Logistics Services
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. SAL Saudi Logistics Services's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 70% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SAL Saudi Logistics Services has delivered an average of 63% per year annual increase in its dividend, based on the past three years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
To Sum It Up
Should investors buy SAL Saudi Logistics Services for the upcoming dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Bottom line: SAL Saudi Logistics Services has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Although, if you're still interested in SAL Saudi Logistics Services and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 1 warning sign with SAL Saudi Logistics Services and understanding them should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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