Explore Baazeem Trading's Fair Values from the Community and select yours

Readers hoping to buy Baazeem Trading Company (TADAWUL:4051) 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Baazeem Trading investors that purchase the stock on or after the 24th of August will not receive the dividend, which will be paid on the 4th of September.

The company's upcoming dividend is ر.س0.07 a share, following on from the last 12 months, when the company distributed a total of ر.س0.18 per share to shareholders. Last year's total dividend payments show that Baazeem Trading has a trailing yield of 3.2% on the current share price of ر.س5.60. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Baazeem Trading is paying out an acceptable 75% of its profit, a common payout level among most companies. 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. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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.

Click here to see how much of its profit Baazeem Trading 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Baazeem Trading, with earnings per share up 3.5% on average over the last five years. A high payout ratio of 75% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Baazeem Trading could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Baazeem Trading has delivered an average of 0.7% per year annual increase in its dividend, based on the past eight years of dividend payments.

The Bottom Line

From a dividend perspective, should investors buy or avoid Baazeem Trading? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. All things considered, we are not particularly enthused about Baazeem Trading from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Baazeem Trading, you should know about the other risks facing this business. For example, Baazeem Trading has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.