Here's What We Like About TRUST Holdings' (TSE:3286) Upcoming Dividend

It looks like TRUST Holdings Inc. (TSE:3286) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. In other words, investors can purchase TRUST Holdings' shares before the 27th of June in order to be eligible for the dividend, which will be paid on the 29th of September.

The company's upcoming dividend is JP¥8.00 a share, following on from the last 12 months, when the company distributed a total of JP¥18.00 per share to shareholders. Based on the last year's worth of payments, TRUST Holdings has a trailing yield of 1.8% on the current stock price of JP¥1006.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether TRUST Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for TRUST Holdings

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. TRUST Holdings paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 2.3% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit TRUST 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. 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 TRUST Holdings has grown its earnings rapidly, up 20% a year for the past five years. TRUST Holdings 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. In the past 10 years, TRUST Holdings has increased its dividend at approximately 0.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because TRUST Holdings is keeping back more of its profits to grow the business.

To Sum It Up

Is TRUST Holdings worth buying for its dividend? It's great that TRUST Holdings 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. TRUST Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while TRUST Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 5 warning signs for TRUST Holdings (of which 1 is potentially serious!) you should know about.

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.

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