We Wouldn't Be Too Quick To Buy Denkyo Group Holdings Co.,Ltd. (TSE:8144) Before It Goes Ex-Dividend

Denkyo Group Holdings Co.,Ltd. (TSE:8144) is about to trade ex-dividend in the next 3 days. 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. 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. Accordingly, Denkyo Group HoldingsLtd investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 3rd 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¥40.00 to shareholders. Looking at the last 12 months of distributions, Denkyo Group HoldingsLtd has a trailing yield of approximately 3.2% on its current stock price of JP¥1265.00. If you buy this business for its dividend, you should have an idea of whether Denkyo Group HoldingsLtd's dividend is reliable and sustainable. 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. Denkyo Group HoldingsLtd paid out a disturbingly high 261% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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. Fortunately, it paid out only 26% of its free cash flow in the past year.

It's good to see that while Denkyo Group HoldingsLtd's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

See 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?

When earnings decline, dividend companies become much harder to analyse and own safely. 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's earnings per share have fallen at approximately 26% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Denkyo Group HoldingsLtd dividends are largely the same as 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.

Final Takeaway

Should investors buy Denkyo Group HoldingsLtd for the upcoming dividend? It's never great to see earnings per share declining, especially when a company is paying out 261% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Denkyo Group HoldingsLtd.

With that in mind though, if the poor dividend characteristics of Denkyo Group HoldingsLtd don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 4 warning signs for Denkyo Group HoldingsLtd (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the 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.