Don't Buy People, Dreams & Technologies Group Co., Ltd. (TSE:9248) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see People, Dreams & Technologies Group Co., Ltd. (TSE:9248) is about to trade ex-dividend in the next 3 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. 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. This means that investors who purchase People Dreams & Technologies Group's shares on or after the 27th of September will not receive the dividend, which will be paid on the 25th of December.

The company's next dividend payment will be JP¥70.00 per share. Last year, in total, the company distributed JP¥70.00 to shareholders. Based on the last year's worth of payments, People Dreams & Technologies Group stock has a trailing yield of around 4.0% on the current share price of JP¥1762.00. 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! As a result, readers should always check whether People Dreams & Technologies Group has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for People Dreams & Technologies Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. People Dreams & Technologies Group paid out more than half (75%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The company paid out 96% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While People Dreams & Technologies Group'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 People Dreams & Technologies Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit People Dreams & Technologies Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. People Dreams & Technologies Group's earnings per share have fallen at approximately 5.3% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. People Dreams & Technologies Group has delivered an average of 24% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is People Dreams & Technologies Group worth buying for its dividend? People Dreams & Technologies Group had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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 People Dreams & Technologies Group. Every company has risks, and we've spotted 4 warning signs for People Dreams & Technologies Group (of which 1 is potentially serious!) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.