What To Know Before Buying Hatsuho Shouji Co.,Ltd. (TYO:7425) For Its Dividend

Is Hatsuho Shouji Co.,Ltd. (TYO:7425) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

In this case, Hatsuho ShoujiLtd likely looks attractive to investors, given its 3.6% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. Some simple research can reduce the risk of buying Hatsuho ShoujiLtd for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Hatsuho ShoujiLtd!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Hatsuho ShoujiLtd paid out 17% of its profit as dividends, over the trailing twelve month period. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.

With a strong net cash balance, Hatsuho ShoujiLtd investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of Hatsuho ShoujiLtd's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Hatsuho ShoujiLtd has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was JP¥20.0 in 2010, compared to JP¥65.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time.

It's rare to find a company that has grown its dividends rapidly over 10 years and not had any notable cuts, but Hatsuho ShoujiLtd has done it, which we really like.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. While there may be fluctuations in the past , Hatsuho ShoujiLtd's earnings per share have basically not grown from where they were five years ago. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Hatsuho ShoujiLtd has a low and conservative payout ratio. Earnings per share have not been growing, but we respect a company that maintains a relatively stable dividend. Overall we think Hatsuho ShoujiLtd is an interesting dividend stock, although it could be better.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for Hatsuho ShoujiLtd that investors should take into consideration.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. 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.
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