Why You Might Be Interested In O-Well Corporation (TSE:7670) For Its Upcoming Dividend

Readers hoping to buy O-Well Corporation (TSE:7670) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase O-Well's shares before the 28th of March to receive the dividend, which will be paid on the 24th of June.

The company's next dividend payment will be JP¥25.00 per share, on the back of last year when the company paid a total of JP¥35.00 to shareholders. Based on the last year's worth of payments, O-Well has a trailing yield of 3.5% on the current stock price of JP¥996.00. If you buy this business for its dividend, you should have an idea of whether O-Well's dividend is reliable and sustainable. As a result, readers should always check whether O-Well has been able to grow its dividends, or if the dividend might be cut.

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. O-Well is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether O-Well generated enough free cash flow to afford its dividend. Fortunately, it paid out only 50% of its free cash flow in the past year.

It's positive to see that O-Well's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for O-Well

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see O-Well earnings per share are up 8.6% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, O-Well has increased its dividend at approximately 4.4% 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.

To Sum It Up

Is O-Well an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and O-Well is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but O-Well is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about O-Well, and we would prioritise taking a closer look at it.

While it's tempting to invest in O-Well for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 3 warning signs for O-Well you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.