Read This Before Considering Yamazen Corporation (TSE:8051) For Its Upcoming JP¥20.00 Dividend

Readers hoping to buy Yamazen Corporation (TSE:8051) 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Yamazen's shares on or after the 29th of September will not receive the dividend, which will be paid on the 9th 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¥52.00 to shareholders. Looking at the last 12 months of distributions, Yamazen has a trailing yield of approximately 3.7% on its current stock price of JP¥1388.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Yamazen paying out a modest 49% of its earnings. A useful secondary check can be to evaluate whether Yamazen generated enough free cash flow to afford its dividend. Over the past year it paid out 140% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Yamazen 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 Yamazen'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 Yamazen to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for Yamazen

Click here to see how much of its profit Yamazen 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 Yamazen, with earnings per share up 4.4% on average 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 last 10 years, Yamazen has lifted its dividend by approximately 8.0% 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

Has Yamazen got what it takes to maintain its dividend payments? Yamazen delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 140% of its cash flow over the last year, which is a mediocre outcome. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you want to look further into Yamazen, it's worth knowing the risks this business faces. For example, we've found 3 warning signs for Yamazen (1 is a bit concerning!) that deserve your attention before investing in the shares.

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