Don't Race Out To Buy Denkyo Group Holdings Co.,Ltd. (TSE:8144) Just Because It's Going Ex-Dividend

Denkyo Group Holdings Co.,Ltd. (TSE:8144) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be two business days 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Denkyo Group HoldingsLtd's shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 30th of June.

The company's next dividend payment will be JP¥20.00 per share, and in the last 12 months, the company paid a total of JP¥40.00 per share. Calculating the last year's worth of payments shows that Denkyo Group HoldingsLtd has a trailing yield of 3.2% on the current share price of JP¥1239.00. If you buy this business for its dividend, you should have an idea of whether Denkyo Group HoldingsLtd's dividend is reliable and sustainable. So we need to investigate whether Denkyo Group HoldingsLtd can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Denkyo Group HoldingsLtd reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its 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. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.

View our latest analysis for Denkyo Group HoldingsLtd

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Denkyo Group HoldingsLtd 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Denkyo Group HoldingsLtd's dividend payments are effectively flat on where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Get our latest analysis on Denkyo Group HoldingsLtd's balance sheet health here.

The Bottom Line

Has Denkyo Group HoldingsLtd got what it takes to maintain its dividend payments? 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. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Denkyo Group HoldingsLtd. For instance, we've identified 3 warning signs for Denkyo Group HoldingsLtd (1 shouldn't be ignored) you should be aware of.

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.