Saudi Arabian Oil Company (TADAWUL:2222) Stock Goes Ex-Dividend In Just Three Days

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 Saudi Arabian Oil Company (TADAWUL:2222) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Saudi Arabian Oil investors that purchase the stock on or after the 17th of November will not receive the dividend, which will be paid on the 25th of November.

The company's next dividend payment will be ر.س0.3393 per share, and in the last 12 months, the company paid a total of ر.س1.33 per share. Based on the last year's worth of payments, Saudi Arabian Oil stock has a trailing yield of around 5.0% on the current share price of ر.س26.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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. Saudi Arabian Oil paid out 73% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Saudi Arabian Oil generated enough free cash flow to afford its dividend. It paid out 101% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Saudi Arabian Oil paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Saudi Arabian Oil to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Saudi Arabian Oil

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Saudi Arabian Oil's earnings per share have been growing at 19% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past seven years, Saudi Arabian Oil has increased its dividend at approximately 5.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Saudi Arabian Oil is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Saudi Arabian Oil? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 101% of its cashflow, which is uncomfortably high. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Saudi Arabian Oil's dividend merits.

With that being said, if dividends aren't your biggest concern with Saudi Arabian Oil, you should know about the other risks facing this business. We've identified 2 warning signs with Saudi Arabian Oil (at least 1 which is significant), and understanding these should be part of your investment process.

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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