Al-Babtain Power and Telecommunications Company (TADAWUL:2320) stock is about to trade ex-dividend in 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. Therefore, if you purchase Al-Babtain Power and Telecommunications' shares on or after the 10th of June, you won't be eligible to receive the dividend, when it is paid on the 1st of January.

The company's next dividend payment will be ر.س0.50 per share, and in the last 12 months, the company paid a total of ر.س2.00 per share. Based on the last year's worth of payments, Al-Babtain Power and Telecommunications has a trailing yield of 2.8% on the current stock price of ر.س72.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Al-Babtain Power and Telecommunications 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. Al-Babtain Power and Telecommunications paid out a comfortable 48% of its profit last year. 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 61% of its free cash flow as dividends, within the usual range for most companies.

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 Al-Babtain Power and Telecommunications paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Al-Babtain Power and Telecommunications's earnings have been skyrocketing, up 45% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Al-Babtain Power and Telecommunications has increased its dividend at approximately 4.1% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

From a dividend perspective, should investors buy or avoid Al-Babtain Power and Telecommunications? Earnings per share have grown at a nice rate in recent times and over the last year, Al-Babtain Power and Telecommunications paid out less than half its earnings and a bit over half its free cash flow. Al-Babtain Power and Telecommunications looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Al-Babtain Power and Telecommunications for the dividends alone, you should always be mindful of the risks involved.

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.