It looks like Saudi Steel Pipes Company (TADAWUL:1320) is about to go ex-dividend in the next 3 days. 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. Accordingly, Saudi Steel Pipes investors that purchase the stock on or after the 28th of June will not receive the dividend, which will be paid on the 7th of July.

The company's next dividend payment will be ر.س0.75 per share, and in the last 12 months, the company paid a total of ر.س1.00 per share. Based on the last year's worth of payments, Saudi Steel Pipes stock has a trailing yield of around 1.8% on the current share price of ر.س54.30. 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! As a result, readers should always check whether Saudi Steel Pipes has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Saudi Steel Pipes paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether Saudi Steel Pipes generated enough free cash flow to afford its dividend. Over the past year it paid out 170% of its free cash flow as dividends, which is uncomfortably 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.

While Saudi Steel Pipes's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Saudi Steel Pipes to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Saudi Steel Pipes has grown its earnings rapidly, up 47% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Saudi Steel Pipes has delivered 16% dividend growth per year on average over the past two years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Has Saudi Steel Pipes got what it takes to maintain its dividend payments? We like that Saudi Steel Pipes has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall, it's hard to get excited about Saudi Steel Pipes from a dividend perspective.

On that note, you'll want to research what risks Saudi Steel Pipes is facing.

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.