Here's Why We're Wary Of Buying STUDIO ALICELtd's (TSE:2305) For Its Upcoming Dividend

Readers hoping to buy STUDIO ALICE Co.,Ltd. (TSE:2305) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, STUDIO ALICELtd investors that purchase the stock on or after the 27th of February will not receive the dividend, which will be paid on the 29th of May.

The company's next dividend payment will be JP¥50.00 per share. Last year, in total, the company distributed JP¥50.00 to shareholders. Based on the last year's worth of payments, STUDIO ALICELtd has a trailing yield of 2.4% on the current stock price of JP¥2086.00. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for STUDIO ALICELtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year STUDIO ALICELtd paid out 100% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while STUDIO ALICELtd's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see how much of its profit STUDIO ALICELtd 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. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see STUDIO ALICELtd's earnings per share have dropped 10% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. STUDIO ALICELtd has delivered an average of 1.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Is STUDIO ALICELtd worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 100% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in STUDIO ALICELtd's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not that we think STUDIO ALICELtd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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 STUDIO ALICELtd. To help with this, we've discovered 3 warning signs for STUDIO ALICELtd (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.