Hokuetsu Industries Co., Ltd. (TSE:6364) Is About To Go Ex-Dividend, And It Pays A 3.1% Yield

Hokuetsu Industries Co., Ltd. (TSE:6364) is about to trade ex-dividend in the next three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Hokuetsu Industries' shares before the 27th of September in order to receive the dividend, which the company will pay on the 4th of December.

The company's next dividend payment will be JP¥20.00 per share, on the back of last year when the company paid a total of JP¥57.00 to shareholders. Based on the last year's worth of payments, Hokuetsu Industries stock has a trailing yield of around 3.1% on the current share price of JP¥1846.00. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Hokuetsu Industries

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. Hokuetsu Industries paid out a comfortable 31% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Hokuetsu Industries 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Hokuetsu Industries, with earnings per share up 7.7% on average over the last five years. Decent historical earnings per share growth suggests Hokuetsu Industries has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Hokuetsu Industries has increased its dividend at approximately 14% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Hokuetsu Industries for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that Hokuetsu Industries is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

In light of that, while Hokuetsu Industries has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Hokuetsu Industries that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.