Yokohama Maruuo (TSE:8045) Could Be A Buy For Its Upcoming Dividend

Yokohama Maruuo Co., Ltd. (TSE:8045) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Yokohama Maruuo's shares on or after the 29th of September will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be JP¥15.00 per share. Last year, in total, the company distributed JP¥30.00 to shareholders. Based on the last year's worth of payments, Yokohama Maruuo has a trailing yield of 2.7% on the current stock price of JP¥1127.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Yokohama Maruuo has been able to grow its dividends, or if the dividend might be cut.

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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. Fortunately Yokohama Maruuo's payout ratio is modest, at just 40% of profit. A useful secondary check can be to evaluate whether Yokohama Maruuo generated enough free cash flow to afford its dividend. It paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Yokohama Maruuo'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.

See our latest analysis for Yokohama Maruuo

Click here to see how much of its profit Yokohama Maruuo 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Yokohama Maruuo's earnings have been skyrocketing, up 45% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Yokohama Maruuo has lifted its dividend by approximately 12% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Yokohama Maruuo an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Yokohama Maruuo paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Yokohama Maruuo, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Yokohama Maruuo is facing. For example - Yokohama Maruuo has 2 warning signs we think you should be aware of.

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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.