There's A Lot To Like About Riyadh Steel's (TADAWUL:9588) Upcoming ر.س0.05 Dividend

Riyadh Steel Company (TADAWUL:9588) is about to trade ex-dividend in the next two days. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Riyadh Steel's shares on or after the 20th of September will not receive the dividend, which will be paid on the 7th of October.

The upcoming dividend for Riyadh Steel is ر.س0.05 per share. 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 investigate whether Riyadh Steel can afford its dividend, and if the dividend could grow.

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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. Riyadh Steel paid out a comfortable 38% of its profit last year. 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. Luckily it paid out just 21% of its free cash flow last year.

It's positive to see that Riyadh Steel'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.

See our latest analysis for Riyadh Steel

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Riyadh Steel's earnings have been skyrocketing, up 22% per annum for the past five years. Riyadh Steel is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

This is Riyadh Steel's first year of paying a regular dividend, so it doesn't have much of a history yet to compare to.

Final Takeaway

From a dividend perspective, should investors buy or avoid Riyadh Steel? We love that Riyadh Steel is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Riyadh Steel looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Riyadh Steel is facing. To that end, you should learn about the 3 warning signs we've spotted with Riyadh Steel (including 1 which is significant).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.