Japan Ecosystem Co., Ltd. (TSE:9249) Goes Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Japan Ecosystem Co., Ltd. (TSE:9249) 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Japan Ecosystem's shares before the 27th of September to receive the dividend, which will be paid on the 27th of December.

The company's next dividend payment will be JP¥26.00 per share. Last year, in total, the company distributed JP¥52.00 to shareholders. Based on the last year's worth of payments, Japan Ecosystem stock has a trailing yield of around 1.1% on the current share price of JP¥4550.00. If you buy this business for its dividend, you should have an idea of whether Japan Ecosystem's dividend is reliable and sustainable. So we need to investigate whether Japan Ecosystem can afford its dividend, and if the dividend could grow.

View our latest analysis for Japan Ecosystem

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. That's why it's good to see Japan Ecosystem paying out a modest 37% of its earnings. 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. Japan Ecosystem paid out more free cash flow than it generated - 118%, to be precise - last year, which we think is concerningly 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.

Japan Ecosystem paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Japan Ecosystem 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 Japan Ecosystem 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Japan Ecosystem earnings per share are up 2.9% per annum 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Japan Ecosystem has delivered 9.1% dividend growth per year on average over the past three years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Japan Ecosystem for the upcoming dividend? Japan Ecosystem has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Japan Ecosystem today.

With that being said, if dividends aren't your biggest concern with Japan Ecosystem, you should know about the other risks facing this business. For example - Japan Ecosystem has 3 warning signs we think you should be aware of.

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.