Shoei Foods (TSE:8079) Could Be A Buy For Its Upcoming Dividend

Readers hoping to buy Shoei Foods Corporation (TSE:8079) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Shoei Foods' shares before the 30th of October to receive the dividend, which will be paid on the 31st of January.

The company's next dividend payment will be JP¥25.00 per share, and in the last 12 months, the company paid a total of JP¥48.00 per share. Calculating the last year's worth of payments shows that Shoei Foods has a trailing yield of 1.1% on the current share price of JP¥4420.00. If you buy this business for its dividend, you should have an idea of whether Shoei Foods's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Shoei Foods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shoei Foods has a low and conservative payout ratio of just 24% of its income after tax. 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 22% 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 Shoei Foods paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Shoei Foods's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shoei Foods has delivered 12% dividend growth per year on average over the past 10 years.

To Sum It Up

Should investors buy Shoei Foods for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Shoei Foods is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Shoei Foods is halfway there. Shoei Foods looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Keen to explore more data on Shoei Foods's financial performance? Check out our visualisation of its historical revenue and earnings growth.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.