Should Income Investors Look At Okuwa Co., Ltd. (TSE:8217) Before Its Ex-Dividend?

Readers hoping to buy Okuwa Co., Ltd. (TSE:8217) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Okuwa investors that purchase the stock on or after the 19th of August will not receive the dividend, which will be paid on the 18th of October.

The company's next dividend payment will be JP¥13.00 per share, and in the last 12 months, the company paid a total of JP¥26.00 per share. Based on the last year's worth of payments, Okuwa has a trailing yield of 2.9% on the current stock price of JP¥885.00. 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 Okuwa has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Okuwa

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. Okuwa distributed an unsustainably high 115% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 59% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Okuwa's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Okuwa 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 Okuwa's earnings have been skyrocketing, up 33% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Okuwa's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

Is Okuwa worth buying for its dividend? Okuwa has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Okuwa's dividend merits.

However if you're still interested in Okuwa as a potential investment, you should definitely consider some of the risks involved with Okuwa. For example - Okuwa has 2 warning signs we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.