Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Al-Modawat Specialized Medical Company (TADAWUL:9594) is about to go ex-dividend in just three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Al-Modawat Specialized Medical's shares before the 16th of June in order to receive the dividend, which the company will pay on the 1st of July.

The company's upcoming dividend is ر.س0.02 a share, following on from the last 12 months, when the company distributed a total of ر.س0.12 per share to shareholders. Based on the last year's worth of payments, Al-Modawat Specialized Medical has a trailing yield of 2.1% on the current stock price of ر.س5.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. Fortunately Al-Modawat Specialized Medical's payout ratio is modest, at just 38% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Al-Modawat Specialized Medical paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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?

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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Al-Modawat Specialized Medical earnings per share are up 8.3% per annum over the last five years.

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

Is Al-Modawat Specialized Medical an attractive dividend stock, or better left on the shelf? Al-Modawat Specialized Medical delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and -1,368% of its cash flow over the last year, which is a mediocre outcome. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So if you want to do more digging on Al-Modawat Specialized Medical, you'll find it worthwhile knowing the risks that this stock faces. For example - Al-Modawat Specialized Medical has 1 warning sign we think you should be aware of.

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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.