Middle East Pharmaceutical Industries Company (TADAWUL:4016) stock is about to trade ex-dividend in four 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. Thus, you can purchase Middle East Pharmaceutical Industries' shares before the 2nd of September in order to receive the dividend, which the company will pay on the 15th of September.

The company's next dividend payment will be ر.س0.80 per share. Last year, in total, the company distributed ر.س1.38 to shareholders. Last year's total dividend payments show that Middle East Pharmaceutical Industries has a trailing yield of 2.1% on the current share price of ر.س64.75. If you buy this business for its dividend, you should have an idea of whether Middle East Pharmaceutical Industries's dividend is reliable and sustainable. So we need to investigate whether Middle East Pharmaceutical Industries can afford its dividend, and if the dividend could grow.

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. Middle East Pharmaceutical Industries is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 an unsustainably high 229% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Middle East Pharmaceutical Industries intends to continue funding this dividend, or if it could be forced to cut the payment.

Middle East Pharmaceutical Industries paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Middle East Pharmaceutical Industries's ability to maintain its dividend.

Click here to see how much of its profit Middle East Pharmaceutical Industries paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Middle East Pharmaceutical Industries, with earnings per share up 8.3% on average over the last five years. Earnings have been growing at a steady rate, 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. In the past two years, Middle East Pharmaceutical Industries has increased its dividend at approximately 27% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has Middle East Pharmaceutical Industries got what it takes to maintain its dividend payments? Middle East Pharmaceutical Industries delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 229% of its cash flow over the last year, which is a mediocre outcome. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Keen to explore more data on Middle East Pharmaceutical Industries's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.