It looks like The First Milling Company (TADAWUL:2283) is about to go ex-dividend in the next day or two. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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, First Milling investors that purchase the stock on or after the 5th of August will not receive the dividend, which will be paid on the 19th of August.

The company's next dividend payment will be ر.س1.79 per share. Last year, in total, the company distributed ر.س3.15 to shareholders. Looking at the last 12 months of distributions, First Milling has a trailing yield of approximately 6.1% on its current stock price of ر.س51.85. If you buy this business for its dividend, you should have an idea of whether First Milling's dividend is reliable and sustainable. As a result, readers should always check whether First Milling 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. First Milling is paying out an acceptable 63% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether First Milling generated enough free cash flow to afford its dividend. It paid out more than half (59%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit First Milling 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see First Milling earnings per share are up 7.2% per annum over the last five years. Decent historical earnings per share growth suggests First Milling has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. First Milling has delivered 4.8% dividend growth per year on average over the past three years. 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 First Milling got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and First Milling paid out a bit over half of its earnings and free cash flow last year. To summarise, First Milling looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in First Milling as a potential investment, you should definitely consider some of the risks involved with First Milling. For example - First Milling has 2 warning signs we think you should be aware of.

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.