Fukoku Co.,Ltd. (TSE:5185) Pays A JP¥42.50 Dividend In Just Three Days

Fukoku Co.,Ltd. (TSE:5185) is about to trade ex-dividend in the next 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. 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 FukokuLtd's shares before the 29th of September in order to receive the dividend, which the company will pay on the 5th of December.

The company's next dividend payment will be JP¥42.50 per share. Last year, in total, the company distributed JP¥85.00 to shareholders. Based on the last year's worth of payments, FukokuLtd stock has a trailing yield of around 4.4% on the current share price of JP¥1924.00. If you buy this business for its dividend, you should have an idea of whether FukokuLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. FukokuLtd paid out a comfortable 45% of its profit last year. A useful secondary check can be to evaluate whether FukokuLtd generated enough free cash flow to afford its dividend. It paid out an unsustainably high 219% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While FukokuLtd'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 FukokuLtd's ability to maintain its dividend.

View our latest analysis for FukokuLtd

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

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see FukokuLtd has grown its earnings rapidly, up 55% a year for the past five years. Earnings have been growing quickly, 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. FukokuLtd has delivered an average of 16% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid FukokuLtd? We like that FukokuLtd has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

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

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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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.