There's A Lot To Like About Onward Holdings' (TSE:8016) Upcoming JP¥26.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Onward Holdings Co., Ltd. (TSE:8016) is about to trade ex-dividend in the next two 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. Therefore, if you purchase Onward Holdings' shares on or after the 27th of February, you won't be eligible to receive the dividend, when it is paid on the 26th of May.

The company's next dividend payment will be JP¥26.00 per share, and in the last 12 months, the company paid a total of JP¥24.00 per share. Last year's total dividend payments show that Onward Holdings has a trailing yield of 4.3% on the current share price of JP¥552.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Onward Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Onward Holdings's payout ratio is modest, at just 41% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 24% of its free cash flow in the last year.

It's positive to see that Onward Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Onward Holdings 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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Onward Holdings, with earnings per share up 6.8% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Onward Holdings's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Should investors buy Onward Holdings for the upcoming dividend? Earnings per share have been growing moderately, and Onward Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Onward Holdings is halfway there. Onward Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Onward Holdings is facing. For example, Onward Holdings has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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.