Why It Might Not Make Sense To Buy Ahresty Corporation (TSE:5852) For Its Upcoming 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 Ahresty Corporation (TSE:5852) is about to go ex-dividend in just three days. 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 Ahresty's shares before the 27th of September in order to receive the dividend, which the company will pay on the 5th of December.

The company's upcoming dividend is JP¥10.00 a share, following on from the last 12 months, when the company distributed a total of JP¥28.00 per share to shareholders. Based on the last year's worth of payments, Ahresty has a trailing yield of 4.7% on the current stock price of JP¥600.00. If you buy this business for its dividend, you should have an idea of whether Ahresty's dividend is reliable and sustainable. So we need to investigate whether Ahresty can afford its dividend, and if the dividend could grow.

View our latest analysis for Ahresty

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ahresty reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. The good news is it paid out just 7.4% of its free cash flow in the last year.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Ahresty was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ahresty has delivered an average of 8.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on Ahresty's balance sheet health here.

Final Takeaway

Is Ahresty an attractive dividend stock, or better left on the shelf? It's hard to get used to Ahresty paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Ahresty has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Ahresty. Our analysis shows 3 warning signs for Ahresty that we strongly recommend you have a look at before investing in the company.

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.