It Might Not Be A Great Idea To Buy Tanabe Consulting Group Co.,Ltd. (TSE:9644) For Its Next Dividend

Tanabe Consulting Group Co.,Ltd. (TSE:9644) 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. 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 Tanabe Consulting GroupLtd's shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be JP¥20.00 per share. Last year, in total, the company distributed JP¥46.00 to shareholders. Looking at the last 12 months of distributions, Tanabe Consulting GroupLtd has a trailing yield of approximately 3.7% on its current stock price of JP¥1257.00. 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 Tanabe Consulting GroupLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tanabe Consulting GroupLtd paid out 108% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 183% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Tanabe Consulting GroupLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

As Tanabe Consulting GroupLtd's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Tanabe Consulting GroupLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Tanabe Consulting GroupLtd's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, Tanabe Consulting GroupLtd has lifted its dividend by approximately 16% a year on average.

Final Takeaway

Is Tanabe Consulting GroupLtd worth buying for its dividend? Tanabe Consulting GroupLtd is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. Bottom line: Tanabe Consulting GroupLtd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Tanabe Consulting GroupLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 2 warning signs with Tanabe Consulting GroupLtd (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.

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.