Is It Worth Considering R.A.K. Ceramics P.J.S.C. (ADX:RAKCEC) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see R.A.K. Ceramics P.J.S.C. (ADX:RAKCEC) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase R.A.K. Ceramics P.J.S.C's shares before the 14th of August in order to receive the dividend, which the company will pay on the 4th of September.

The company's next dividend payment will be د.إ0.10 per share. Last year, in total, the company distributed د.إ0.20 to shareholders. Based on the last year's worth of payments, R.A.K. Ceramics P.J.S.C has a trailing yield of 8.1% on the current stock price of د.إ2.48. If you buy this business for its dividend, you should have an idea of whether R.A.K. Ceramics P.J.S.C's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that R.A.K. Ceramics P.J.S.C's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for R.A.K. Ceramics P.J.S.C

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at R.A.K. Ceramics P.J.S.C, with earnings per share up 6.6% on average over the last five years. Decent historical earnings per share growth suggests R.A.K. Ceramics P.J.S.C has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. R.A.K. Ceramics P.J.S.C has seen its dividend decline 2.1% per annum on average over the past 10 years, which is not great to see. R.A.K. Ceramics P.J.S.C is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Should investors buy R.A.K. Ceramics P.J.S.C for the upcoming dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. In summary, it's hard to get excited about R.A.K. Ceramics P.J.S.C from a dividend perspective.

So if you want to do more digging on R.A.K. Ceramics P.J.S.C, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 2 warning signs for R.A.K. Ceramics P.J.S.C you should be aware of.

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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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.