Here's Why We're Wary Of Buying Yondoshi Holdings' (TSE:8008) For Its Upcoming Dividend

It looks like Yondoshi Holdings Inc. (TSE:8008) is about to go ex-dividend in the next three days. The ex-dividend date is one business day 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 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. Meaning, you will need to purchase Yondoshi Holdings' shares before the 27th of February to receive the dividend, which will be paid on the 2nd of June.

The company's next dividend payment will be JP¥41.50 per share, on the back of last year when the company paid a total of JP¥83.00 to shareholders. Calculating the last year's worth of payments shows that Yondoshi Holdings has a trailing yield of 4.5% on the current share price of JP¥1831.00. If you buy this business for its dividend, you should have an idea of whether Yondoshi Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Yondoshi Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Yondoshi 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. Yondoshi Holdings distributed an unsustainably high 128% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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 last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's good to see that while Yondoshi Holdings's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Yondoshi Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Yondoshi Holdings's earnings per share have fallen at approximately 7.6% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Yondoshi Holdings has increased its dividend at approximately 10% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Yondoshi Holdings is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Is Yondoshi Holdings worth buying for its dividend? Earnings per share have been shrinking in recent times. What's more, Yondoshi Holdings is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not that we think Yondoshi Holdings is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Yondoshi Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 1 warning sign for Yondoshi Holdings you should know about.

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.