It looks like SAL Saudi Logistics Services Company (TADAWUL:4263) is about to go ex-dividend in the next 2 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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 SAL Saudi Logistics Services' shares before the 6th of August in order to be eligible for the dividend, which will be paid on the 20th of August.

The company's next dividend payment will be ر.س1.79 per share. Last year, in total, the company distributed ر.س6.54 to shareholders. Based on the last year's worth of payments, SAL Saudi Logistics Services stock has a trailing yield of around 3.8% on the current share price of ر.س173.00. If you buy this business for its dividend, you should have an idea of whether SAL Saudi Logistics Services's dividend is reliable and sustainable. As a result, readers should always check whether SAL Saudi Logistics Services has been able to grow its dividends, or if the dividend might be cut.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 75% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that SAL Saudi Logistics Services's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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 earnings fall far enough, the company could be forced to cut its dividend. SAL Saudi Logistics Services's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 70% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. SAL Saudi Logistics Services has delivered 108% dividend growth per year on average over the past two years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Is SAL Saudi Logistics Services an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least SAL Saudi Logistics Services's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think SAL Saudi Logistics Services is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in SAL Saudi Logistics Services despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock.

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.