It looks like City Cement Company (TADAWUL:3003) is about to go ex-dividend in the next day or so. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Thus, you can purchase City Cement’s shares before the 13th of September in order to receive the dividend, which the company will pay on the 26th of September.
The company’s upcoming dividend is ر.س0.40 a share, following on from the last 12 months, when the company distributed a total of ر.س1.00 per share to shareholders. Calculating the last year’s worth of payments shows that City Cement has a trailing yield of 4.3% on the current share price of SAR23.44. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether City Cement has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for City Cement
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. It paid out 81% 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. We’d be worried about the risk of a drop in earnings. 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. City Cement paid out more free cash flow than it generated – 171%, 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 City Cement’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 City Cement’s ability to maintain its dividend.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re discomforted by City Cement’s 17% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. City Cement has seen its dividend decline 6.8% per annum on average over the past 10 years, which is not great to see. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Is City Cement an attractive dividend stock, or better left on the shelf? City Cement had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Bottom line: City Cement has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
So if you’re still interested in City Cement despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we’ve spotted 2 warning signs for City Cement you should know about.
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.
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