Is It Worth Considering Al Hammadi Holding Company (TADAWUL:4007) For Its Upcoming Dividend?
It looks like Al Hammadi Holding Company (TADAWUL:4007) is about to go ex-dividend in the next two 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase Al Hammadi Holding's shares before the 16th of November in order to be eligible for the dividend, which will be paid on the 26th of November.
The company's next dividend payment will be ر.س0.20 per share, on the back of last year when the company paid a total of ر.س0.80 to shareholders. Looking at the last 12 months of distributions, Al Hammadi Holding has a trailing yield of approximately 3.6% on its current stock price of ر.س22.44. 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 usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Al Hammadi Holding has a low and conservative payout ratio of just 14% of its income after tax. 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. Al Hammadi Holding paid out more free cash flow than it generated - 150%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Al Hammadi Holding'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 Al Hammadi Holding's ability to maintain its dividend.
See our latest analysis for Al Hammadi Holding
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Al Hammadi Holding's earnings have been skyrocketing, up 29% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Al Hammadi Holding has delivered an average of 3.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
From a dividend perspective, should investors buy or avoid Al Hammadi Holding? We like that Al Hammadi Holding has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Al Hammadi Holding's dividend merits.
On that note, you'll want to research what risks Al Hammadi Holding is facing. Every company has risks, and we've spotted 1 warning sign for Al Hammadi Holding you should know about.
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.
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