Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Jarir Marketing Company (TADAWUL:4190) is about to go ex-dividend in just four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Jarir Marketing's shares on or after the 2nd of June, you won't be eligible to receive the dividend, when it is paid on the 10th of June.

The company's next dividend payment will be ر.س0.21 per share, on the back of last year when the company paid a total of ر.س0.89 to shareholders. Based on the last year's worth of payments, Jarir Marketing has a trailing yield of 5.6% on the current stock price of ر.س15.77. 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 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. Jarir Marketing paid out 106% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 66% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Jarir Marketing fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Jarir Marketing's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Jarir Marketing has lifted its dividend by approximately 5.5% a year on average.

The Bottom Line

Is Jarir Marketing worth buying for its dividend? Earnings per share have barely moved in recent times, and the company is paying out an uncomfortably high percentage of its income. Fortunately its cash generation was somewhat stronger. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Jarir Marketing despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock.

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.