Hagihara Industries Inc. (TSE:7856) Stock Goes Ex-Dividend In Just Three Days

Hagihara Industries Inc. (TSE:7856) stock is about to trade ex-dividend in 3 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. 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. Accordingly, Hagihara Industries investors that purchase the stock on or after the 26th of April will not receive the dividend, which will be paid on the 4th of July.

The company's next dividend payment will be JP¥25.00 per share, on the back of last year when the company paid a total of JP¥50.00 to shareholders. Looking at the last 12 months of distributions, Hagihara Industries has a trailing yield of approximately 3.1% on its current stock price of JP¥1598.00. If you buy this business for its dividend, you should have an idea of whether Hagihara Industries's dividend is reliable and sustainable. As a result, readers should always check whether Hagihara Industries has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Hagihara Industries

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. Fortunately Hagihara Industries's payout ratio is modest, at just 39% of profit. A useful secondary check can be to evaluate whether Hagihara Industries generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 355% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Hagihara Industries is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Hagihara Industries's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Hagihara Industries to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Hagihara Industries 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. That explains why we're not overly excited about Hagihara Industries's flat earnings 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. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Hagihara Industries has lifted its dividend by approximately 9.6% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Hagihara Industries? Earnings per share have been effectively flat over this time, and Hagihara Industries's paying out less than half its profits and 355% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. In summary, while it has some positive characteristics, we're not inclined to race out and buy Hagihara Industries today.

If you're not too concerned about Hagihara Industries's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 1 warning sign for Hagihara Industries and you should be aware of it before buying any shares.

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.