Iwabuchi Corporation (TSE:5983) Will Pay A JP¥155.00 Dividend In Four Days

It looks like Iwabuchi Corporation (TSE:5983) is about to go ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Iwabuchi's shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥155.00 per share. Last year, in total, the company distributed JP¥250 to shareholders. Based on the last year's worth of payments, Iwabuchi stock has a trailing yield of around 2.4% on the current share price of JP¥10220.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Iwabuchi paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether Iwabuchi generated enough free cash flow to afford its dividend. Over the past year it paid out 157% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Iwabuchi does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Iwabuchi's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Iwabuchi to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Iwabuchi

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Iwabuchi earnings per share are up 4.5% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Iwabuchi has increased its dividend at approximately 5.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Iwabuchi an attractive dividend stock, or better left on the shelf? Iwabuchi delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 157% of its cash flow over the last year, which is a mediocre outcome. All things considered, we are not particularly enthused about Iwabuchi from a dividend perspective.

So if you want to do more digging on Iwabuchi, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 3 warning signs for Iwabuchi that you should be aware of before investing in their shares.

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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.