There's A Lot To Like About Sugi HoldingsLtd's (TSE:7649) Upcoming JP¥20.00 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sugi Holdings Co.,Ltd. (TSE:7649) is about to go ex-dividend in just 4 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Sugi HoldingsLtd's shares before the 27th of February to receive the dividend, which will be paid on the 22nd of May.

The company's next dividend payment will be JP¥20.00 per share, on the back of last year when the company paid a total of JP¥40.00 to shareholders. Based on the last year's worth of payments, Sugi HoldingsLtd stock has a trailing yield of around 1.5% on the current share price of JP¥2731.50. If you buy this business for its dividend, you should have an idea of whether Sugi HoldingsLtd's dividend is reliable and sustainable. So we need to investigate whether Sugi HoldingsLtd can afford its dividend, and if the dividend could grow.

See our latest analysis for Sugi HoldingsLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sugi HoldingsLtd paid out 60% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Sugi HoldingsLtd generated enough free cash flow to afford its dividend. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Sugi HoldingsLtd'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. With that in mind, we're encouraged by the steady growth at Sugi HoldingsLtd, with earnings per share up 8.5% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Sugi HoldingsLtd has lifted its dividend by approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Sugi HoldingsLtd for the upcoming dividend? While earnings per share growth has been modest, Sugi HoldingsLtd's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall, it's hard to get excited about Sugi HoldingsLtd from a dividend perspective.

Ever wonder what the future holds for Sugi HoldingsLtd? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.