The First Milling Company (TADAWUL:2283) stock is about to trade ex-dividend in 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase First Milling's shares before the 31st of August in order to be eligible for the dividend, which will be paid on the .

The company's next dividend payment will be ر.س1.79 per share, and in the last 12 months, the company paid a total of ر.س3.15 per share. Last year's total dividend payments show that First Milling has a trailing yield of 5.9% on the current share price of ر.س53.35. If you buy this business for its dividend, you should have an idea of whether First Milling's dividend is reliable and sustainable. As a result, readers should always check whether First Milling has been able to grow its dividends, or if the dividend might be cut.

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. Fortunately First Milling's payout ratio is modest, at just 32% of profit. 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 51% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that First Milling'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.

Click here to see how much of its profit First Milling 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 First Milling earnings per share are up 8.3% per annum over the last five years. Decent historical earnings per share growth suggests First Milling has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. First Milling has delivered 4.8% dividend growth per year on average over the past three years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy First Milling for the upcoming dividend? Earnings per share have been growing at a steady rate, and First Milling paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, First Milling looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in First Milling for the dividends alone, you should always be mindful of the risks involved.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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.