Don’t buy Jarir Marketing Company (TADAWUL: 4190) for its next dividend without doing these checks

It looks like Jarir Marketing Company (TADAWUL: 4190) is set to be ex-dividend in the next few days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. This means that investors who buy the shares of Jarir Marketing from November 9th will not receive the dividend, which will be paid on November 17th.

The company’s next dividend payment will be 2.05 per share. Last year, in total, the company distributed ر.س 7.85 to shareholders. Looking at the last 12 months of distributions, Jarir Marketing has a rolling return of around 3.8% on its current price of SAR204. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. Therefore, readers should always check whether Jarir Marketing was able to increase its dividends or if the dividend could be reduced.

See our latest analysis for Jarir Marketing

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Last year Jarir Marketing paid out 95% of its income as dividends, which is above a level we are comfortable with, especially if the company needs to reinvest in its business. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by the cash flow. In the past year, it has paid out 195% of its free cash flow as dividends, which is uncomfortably high. We’re curious as to why the company paid out more cash than it generated last year, as that can be one of the first signs that a dividend may be unsustainable.

As the Jarir Marketing dividend is not well covered by earnings or cash flow, we are concerned that this dividend may be at risk in the long term.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

SASE: 4190 Historical dividend November 7, 2021

Have profits and dividends increased?

Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. That’s why it’s a relief to see Jarir Marketing’s earnings per share increase by 3.8% per year over the past five years. Minimal profit growth, combined with relatively high payout ratios, suggests that Jarir Marketing is unlikely to increase the dividend much in the future, and indeed the payout could be vulnerable to a cut.

Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began nine years ago, Jarir Marketing has increased its dividend by around 8.2% per year on average. We are happy to see dividends increasing alongside earnings over multiple years, which may be a sign that the company intends to share the growth with its shareholders.

To summarize

Is Jarir Marketing an attractive dividend stock, or better left off the shelf? Jarir Marketing pays an uncomfortably high percentage of earnings and cash flow as dividends, although at least earnings per share increase somewhat. It’s not that we think Jarir Marketing is a bad company, but these characteristics don’t usually lead to outstanding dividend performance.

However, if you are still interested in Jarir Marketing and want to learn more, then it will be very helpful for you to know the risks that this title faces. We have identified 2 warning signs with Jarir Marketing (at least 1 which is a bit rude), and understanding them should be part of your investment process.

A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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