Be Sure To Check Out Eco's Co.,Ltd. (TSE:7520) Before It Goes Ex-Dividend

It looks like Eco's Co.,Ltd. (TSE:7520) is about to go ex-dividend in the next 3 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. 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. Accordingly, Eco'sLtd investors that purchase the stock on or after the 27th of February will not receive the dividend, which will be paid on the 23rd of May.

The company's upcoming dividend is JP¥60.00 a share, following on from the last 12 months, when the company distributed a total of JP¥60.00 per share to shareholders. Looking at the last 12 months of distributions, Eco'sLtd has a trailing yield of approximately 3.0% on its current stock price of JP¥1994.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Eco'sLtd

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. Eco'sLtd paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Eco'sLtd generated enough free cash flow to afford its dividend. Luckily it paid out just 20% of its free cash flow last 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 Eco'sLtd 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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Eco'sLtd's earnings per share have risen 13% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Eco'sLtd has increased its dividend at approximately 20% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Eco'sLtd an attractive dividend stock, or better left on the shelf? Eco'sLtd has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Eco'sLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

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

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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.