Readers hoping to buy Almunajem Foods Company (TADAWUL:4162) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Thus, you can purchase Almunajem Foods' shares before the 14th of June in order to receive the dividend, which the company will pay on the 28th of June.

The company's next dividend payment will be ر.س1.00 per share, on the back of last year when the company paid a total of ر.س2.00 to shareholders. Based on the last year's worth of payments, Almunajem Foods stock has a trailing yield of around 3.1% on the current share price of ر.س64.05. 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 investigate whether Almunajem Foods 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. Almunajem Foods paid out 55% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Almunajem Foods generated enough free cash flow to afford its dividend. Over the past year it paid out 155% 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.

Almunajem Foods 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 Almunajem Foods's ability to maintain its dividend.

Click here to see how much of its profit Almunajem Foods paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Almunajem Foods's earnings per share have been shrinking at 3.3% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Almunajem Foods's dividend payments are broadly unchanged compared to where they were four years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Final Takeaway

Is Almunajem Foods an attractive dividend stock, or better left on the shelf? Almunajem Foods had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not that we think Almunajem Foods is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Almunajem Foods as an investment, you'll find it beneficial to know what risks this stock is facing.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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.