Don't Buy Aozora Bank, Ltd. (TSE:8304) For Its Next Dividend Without Doing These Checks

Aozora Bank, Ltd. (TSE:8304) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Aozora Bank's shares before the 27th of December in order to receive the dividend, which the company will pay on the 1st of January.

The company's upcoming dividend is JP¥19.00 a share, following on from the last 12 months, when the company distributed a total of JP¥76.00 per share to shareholders. Looking at the last 12 months of distributions, Aozora Bank has a trailing yield of approximately 3.1% on its current stock price of JP¥2424.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Aozora Bank has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Aozora Bank

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. Aozora Bank's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Aozora Bank reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Aozora Bank also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Aozora Bank has seen its dividend decline 7.2% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

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

To Sum It Up

Is Aozora Bank an attractive dividend stock, or better left on the shelf? It's hard to get past the idea of Aozora Bank paying a dividend despite reporting a loss over the past year - especially when the general trend in its earnings also looks to be negative. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

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 Aozora Bank. Every company has risks, and we've spotted 2 warning signs for Aozora Bank you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.