Be Sure To Check Out Toyota Boshoku Corporation (TSE:3116) Before It Goes Ex-Dividend

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 Toyota Boshoku Corporation (TSE:3116) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Toyota Boshoku's shares before the 28th of March in order to be eligible for the dividend, which will be paid on the 27th of May.

The company's upcoming dividend is JP¥43.00 a share, following on from the last 12 months, when the company distributed a total of JP¥86.00 per share to shareholders. Last year's total dividend payments show that Toyota Boshoku has a trailing yield of 3.3% on the current share price of JP¥2620.00. If you buy this business for its dividend, you should have an idea of whether Toyota Boshoku's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Toyota Boshoku

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. Fortunately Toyota Boshoku's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether Toyota Boshoku generated enough free cash flow to afford its dividend. The good news is it paid out just 14% of its free cash flow in the last year.

It's positive to see that Toyota Boshoku'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.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Toyota Boshoku earnings per share are up 3.2% per annum over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Toyota Boshoku has increased its dividend at approximately 17% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Toyota Boshoku? Earnings per share have been growing moderately, and Toyota Boshoku is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Toyota Boshoku is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Toyota Boshoku for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Toyota Boshoku that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.