Abdullah Al-Othaim Markets Company (TADAWUL:4001) stock is about to trade ex-dividend in two days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Abdullah Al-Othaim Markets investors that purchase the stock on or after the 21st of February will not receive the dividend, which will be paid on the 7th of March.

The company's next dividend payment will be ر.س0.30 per share. Last year, in total, the company distributed ر.س0.60 to shareholders. Calculating the last year's worth of payments shows that Abdullah Al-Othaim Markets has a trailing yield of 4.3% on the current share price of ر.س14.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Abdullah Al-Othaim Markets

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Abdullah Al-Othaim Markets paid out 105% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Abdullah Al-Othaim Markets paid out more free cash flow than it generated - 157%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Abdullah Al-Othaim Markets's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Abdullah Al-Othaim Markets earnings per share are up 7.5% per annum over the last five years. Earnings per share have been growing comfortably, although unfortunately the company is paying out more of its profits than we're comfortable with over the long term.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Abdullah Al-Othaim Markets has delivered an average of 23% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Abdullah Al-Othaim Markets worth buying for its dividend? Abdullah Al-Othaim Markets is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not that we think Abdullah Al-Othaim Markets is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Abdullah Al-Othaim Markets and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 3 warning signs for Abdullah Al-Othaim Markets (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

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.