Readers hoping to buy Al-Modawat Specialized Medical Company (TADAWUL:9594) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase Al-Modawat Specialized Medical's shares before the 17th of November in order to be eligible for the dividend, which will be paid on the 1st of December.
The company's next dividend payment will be ر.س0.02 per share, and in the last 12 months, the company paid a total of ر.س0.12 per share. Last year's total dividend payments show that Al-Modawat Specialized Medical has a trailing yield of 2.9% on the current share price of ر.س4.18. If you buy this business for its dividend, you should have an idea of whether Al-Modawat Specialized Medical's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see Al-Modawat Specialized Medical paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Al-Modawat Specialized Medical generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Check out our latest analysis for Al-Modawat Specialized Medical
Click here to see how much of its profit Al-Modawat Specialized Medical paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Al-Modawat Specialized Medical, with earnings per share up 4.5% on average over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Al-Modawat Specialized Medical has seen its dividend decline 28% per annum on average over the past two years, which is not great to see. Al-Modawat Specialized Medical is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
From a dividend perspective, should investors buy or avoid Al-Modawat Specialized Medical? Earnings per share growth has been growing somewhat, and Al-Modawat Specialized Medical is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Al-Modawat Specialized Medical is halfway there. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Al-Modawat Specialized Medical for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 3 warning signs with Al-Modawat Specialized Medical 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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