Is It Smart To Buy Amita Holdings Co.,Ltd. (TSE:2195) Before It Goes Ex-Dividend?

It looks like Amita Holdings Co.,Ltd. (TSE:2195) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. In other words, investors can purchase Amita HoldingsLtd's shares before the 27th of December in order to be eligible for the dividend, which will be paid on the 25th of March.

The company's next dividend payment will be JP¥4.00 per share. Last year, in total, the company distributed JP¥4.00 to shareholders. Based on the last year's worth of payments, Amita HoldingsLtd has a trailing yield of 1.2% on the current stock price of JP¥333.00. 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 investigate whether Amita HoldingsLtd can afford its dividend, and if the dividend could grow.

See our latest analysis for Amita HoldingsLtd

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. Amita HoldingsLtd paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Amita HoldingsLtd generated enough free cash flow to afford its dividend. The good news is it paid out just 21% of its free cash flow in the last year.

It's positive to see that Amita HoldingsLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Amita HoldingsLtd has grown its earnings rapidly, up 79% a year for the past five years. Amita HoldingsLtd looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Amita HoldingsLtd has delivered an average of 20% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Amita HoldingsLtd worth buying for its dividend? It's great that Amita HoldingsLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Amita HoldingsLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Amita HoldingsLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for Amita HoldingsLtd 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.

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.