Al Moammar Information Systems Company (TADAWUL:7200) stock is about to trade ex-dividend in three 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase Al Moammar Information Systems' shares before the 15th of October in order to be eligible for the dividend, which will be paid on the 26th of October.

The company's next dividend payment will be ر.س0.80 per share, on the back of last year when the company paid a total of ر.س3.20 to shareholders. Calculating the last year's worth of payments shows that Al Moammar Information Systems has a trailing yield of 2.2% on the current share price of ر.س145.90. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Al Moammar Information Systems distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. Al Moammar Information Systems paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Al Moammar Information Systems fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Al Moammar Information Systems 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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Al Moammar Information Systems, with earnings per share up 2.4% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Al Moammar Information Systems has delivered 20% dividend growth per year on average over the past six years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Al Moammar Information Systems an attractive dividend stock, or better left on the shelf? Al Moammar Information Systems is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Al Moammar Information Systems despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 3 warning signs with Al Moammar Information Systems (at least 2 which are potentially serious), and understanding them should be part of your investment process.

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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.