Do These 3 Checks Before Buying Okabe Co., Ltd. (TSE:5959) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Okabe Co., Ltd. (TSE:5959) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. This means that investors who purchase Okabe's shares on or after the 27th of December will not receive the dividend, which will be paid on the 14th of March.

The company's next dividend payment will be JP¥15.00 per share, and in the last 12 months, the company paid a total of JP¥30.00 per share. Based on the last year's worth of payments, Okabe stock has a trailing yield of around 3.9% on the current share price of JP¥762.00. If you buy this business for its dividend, you should have an idea of whether Okabe's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Okabe

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. Okabe lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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. Dividends consumed 57% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Okabe 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Okabe has lifted its dividend by approximately 3.2% a year on average.

We update our analysis on Okabe every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Okabe? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Okabe.

Although, if you're still interested in Okabe and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 2 warning signs for Okabe (1 is potentially serious!) that you ought to be aware of before buying the shares.

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.