It looks like Nahdi Medical Company (TADAWUL:4164) is about to go ex-dividend in the next 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Nahdi Medical's shares before the 16th of August in order to be eligible for the dividend, which will be paid on the 26th of August.

The company's next dividend payment will be ر.س2.60 per share, and in the last 12 months, the company paid a total of ر.س5.60 per share. Based on the last year's worth of payments, Nahdi Medical stock has a trailing yield of around 5.8% on the current share price of ر.س96.25. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Nahdi Medical paid out 99% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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 64% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Nahdi Medical's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Nahdi Medical's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nahdi Medical has delivered 4.9% dividend growth per year on average over the past four years.

To Sum It Up

Is Nahdi Medical an attractive dividend stock, or better left on the shelf? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Plus, Nahdi Medical's paying out a high percentage of its earnings and more than half its cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Nahdi Medical and want to know more, you'll find it very useful to know what risks this stock faces.

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.