Should You Buy OYO Corporation (TSE:9755) For Its Upcoming Dividend?

OYO Corporation (TSE:9755) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Thus, you can purchase OYO's shares before the 27th of December in order to receive the dividend, which the company will pay on the 27th of March.

The company's upcoming dividend is JP¥39.00 a share, following on from the last 12 months, when the company distributed a total of JP¥68.00 per share to shareholders. Based on the last year's worth of payments, OYO stock has a trailing yield of around 2.7% on the current share price of JP¥2496.00. If you buy this business for its dividend, you should have an idea of whether OYO's dividend is reliable and sustainable. As a result, readers should always check whether OYO has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for OYO

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. That's why it's good to see OYO paying out a modest 29% of its 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. Fortunately, it paid out only 41% of its free cash flow in the past 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 OYO 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. That's why it's comforting to see OYO's earnings have been skyrocketing, up 48% per annum for the past five years. OYO is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, OYO has lifted its dividend by approximately 11% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is OYO an attractive dividend stock, or better left on the shelf? It's great that OYO 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. There's a lot to like about OYO, and we would prioritise taking a closer look at it.

While it's tempting to invest in OYO for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for OYO that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.