Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Arabian Pipes Company (TADAWUL:2200) is about to trade ex-dividend in the next three days. 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 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 Arabian Pipes' shares before the 23rd of June in order to be eligible for the dividend, which will be paid on the 12th of July.

The company's next dividend payment will be ر.س0.17 per share, on the back of last year when the company paid a total of ر.س0.17 to shareholders. Looking at the last 12 months of distributions, Arabian Pipes has a trailing yield of approximately 2.3% on its current stock price of ر.س7.47. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! 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. Fortunately Arabian Pipes's payout ratio is modest, at just 38% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 18% of its free cash flow in the last year.

It's positive to see that Arabian Pipes'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Arabian Pipes has grown its earnings rapidly, up 61% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Unfortunately Arabian Pipes has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Is Arabian Pipes an attractive dividend stock, or better left on the shelf? Arabian Pipes has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Arabian Pipes looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Arabian Pipes has an appealing dividend, it's worth knowing the risks involved with this stock.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.