Here's What We Like About Reiwa Accounting Holdings' (TSE:296A) Upcoming Dividend

Readers hoping to buy Reiwa Accounting Holdings Co., Ltd. (TSE:296A) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Reiwa Accounting Holdings' shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be JP¥12.00 per share. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Reiwa Accounting Holdings'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.

Check out our latest analysis for Reiwa Accounting Holdings

Click here to see how much of its profit Reiwa Accounting Holdings 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For that reason, it's encouraging to see Reiwa Accounting Holdings's earnings over the past year have risen 26%. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

This is Reiwa Accounting Holdings's first year of paying a regular dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

The Bottom Line

Should investors buy Reiwa Accounting Holdings for the upcoming dividend? Reiwa Accounting Holdings's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Reiwa Accounting Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Reiwa Accounting Holdings is facing. In terms of investment risks, we've identified 2 warning signs with Reiwa Accounting Holdings and understanding them should be part of your investment process.

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.