Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dr. Sulaiman Al Habib Medical Services Group Company (TADAWUL:4013) is about to trade ex-dividend in the next two days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Dr. Sulaiman Al Habib Medical Services Group's shares on or after the 10th 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.س1.01 per share. Last year, in total, the company distributed ر.س4.83 to shareholders. Looking at the last 12 months of distributions, Dr. Sulaiman Al Habib Medical Services Group has a trailing yield of approximately 2.2% on its current stock price of ر.س223.00. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Dr. Sulaiman Al Habib Medical Services Group paid out 55% of its earnings to investors last year, a normal payout level for most businesses. 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. Dr. Sulaiman Al Habib Medical Services Group paid out more free cash flow than it generated - 141%, to be precise - last year, which we think is concerningly 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 Dr. Sulaiman Al Habib Medical Services Group'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. Were this to happen repeatedly, this would be a risk to Dr. Sulaiman Al Habib Medical Services Group's ability to maintain its dividend.

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

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Dr. Sulaiman Al Habib Medical Services Group's earnings per share have risen 17% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dr. Sulaiman Al Habib Medical Services Group has delivered an average of 16% 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 Dr. Sulaiman Al Habib Medical Services Group an attractive dividend stock, or better left on the shelf? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 141% of its cashflow, which is uncomfortably high. Overall, it's hard to get excited about Dr. Sulaiman Al Habib Medical Services Group from a dividend perspective.

However if you're still interested in Dr. Sulaiman Al Habib Medical Services Group as a potential investment, you should definitely consider some of the risks involved with Dr. Sulaiman Al Habib Medical Services Group. For example - Dr. Sulaiman Al Habib Medical Services Group has 1 warning sign we think you should be aware of.

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.