Sumou Real Estate Company (TADAWUL:4323) is about to trade ex-dividend in the next 3 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 as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Sumou Real Estate investors that purchase the stock on or after the 11th of May will not receive the dividend, which will be paid on the 21st of May.

The company's next dividend payment will be ر.س0.50 per share. Last year, in total, the company distributed ر.س1.00 to shareholders. Last year's total dividend payments show that Sumou Real Estate has a trailing yield of 3.4% on the current share price of ر.س29.84. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sumou Real Estate can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Sumou Real Estate's payout ratio is modest, at just 38% of profit. A useful secondary check can be to evaluate whether Sumou Real Estate generated enough free cash flow to afford its dividend. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Sumou Real Estate'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 how much of its profit Sumou Real Estate paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Sumou Real Estate's earnings per share have risen 14% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sumou Real Estate has delivered an average of 12% per year annual increase in its dividend, based on the past six years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Sumou Real Estate an attractive dividend stock, or better left on the shelf? Sumou Real Estate has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past six years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Sumou Real Estate, and we would prioritise taking a closer look at it.

In light of that, while Sumou Real Estate has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Sumou Real Estate and understanding them should be part of your investment process.

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.