Here's What We Like About HalowsLtd's (TSE:2742) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Halows Co.,Ltd. (TSE:2742) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. In other words, investors can purchase HalowsLtd's shares before the 27th of February in order to be eligible for the dividend, which will be 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¥52.00 per share. Calculating the last year's worth of payments shows that HalowsLtd has a trailing yield of 1.3% on the current share price of JP¥3940.00. If you buy this business for its dividend, you should have an idea of whether HalowsLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for HalowsLtd

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. HalowsLtd is paying out just 1.4% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Luckily it paid out just 5.3% of its free cash flow last year.

It's positive to see that HalowsLtd'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 HalowsLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 HalowsLtd's earnings have been skyrocketing, up 22% per annum for the past five years. HalowsLtd looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last four years, HalowsLtd has lifted its dividend by approximately 9.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid HalowsLtd? We love that HalowsLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

Want to learn more about HalowsLtd? Here's a visualisation of its historical rate of revenue and earnings growth.

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.