Is It Smart To Buy TACHI-S Co., Ltd. (TSE:7239) Before It Goes Ex-Dividend?

TACHI-S Co., Ltd. (TSE:7239) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is two business days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase TACHI-S' shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 4th of June.

The company's next dividend payment will be JP¥51.90 per share, and in the last 12 months, the company paid a total of JP¥104 per share. Looking at the last 12 months of distributions, TACHI-S has a trailing yield of approximately 5.7% on its current stock price of JP¥1819.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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 TACHI-S's payout ratio is modest, at just 44% of profit. A useful secondary check can be to evaluate whether TACHI-S generated enough free cash flow to afford its dividend. Fortunately, it paid out only 37% of its free cash flow in the past year.

It's positive to see that TACHI-S'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.

See our latest analysis for TACHI-S

Click here to see how much of its profit TACHI-S 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see TACHI-S's earnings have been skyrocketing, up 32% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. TACHI-S has delivered an average of 21% 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

Has TACHI-S got what it takes to maintain its dividend payments? TACHI-S has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks TACHI-S is facing. For instance, we've identified 3 warning signs for TACHI-S (1 is concerning) you should be aware of.

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.