Readers hoping to buy Abdullah Al-Othaim Markets Company (TADAWUL:4001) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Abdullah Al-Othaim Markets' shares before the 31st of May in order to receive the dividend, which the company will pay on the 17th of June.

The company's next dividend payment will be ر.س0.06 per share, on the back of last year when the company paid a total of ر.س0.41 to shareholders. Looking at the last 12 months of distributions, Abdullah Al-Othaim Markets has a trailing yield of approximately 6.9% on its current stock price of ر.س5.93. If you buy this business for its dividend, you should have an idea of whether Abdullah Al-Othaim Markets's dividend is reliable and sustainable. So we need to investigate whether Abdullah Al-Othaim Markets can afford its dividend, and if the dividend could grow.

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. Abdullah Al-Othaim Markets distributed an unsustainably high 142% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. Abdullah Al-Othaim Markets paid out more free cash flow than it generated - 115%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Abdullah Al-Othaim Markets's earnings per share have fallen at approximately 13% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Abdullah Al-Othaim Markets has delivered 17% dividend growth per year on average over the past 10 years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Abdullah Al-Othaim Markets is already paying out 142% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

To Sum It Up

Is Abdullah Al-Othaim Markets worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (142%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Abdullah Al-Othaim Markets as an investment, you'll find it beneficial to know what risks this stock is facing. For example, Abdullah Al-Othaim Markets has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.