Should Income Investors Look At Heiwado Co.,Ltd. (TSE:8276) Before Its Ex-Dividend?

Heiwado Co.,Ltd. (TSE:8276) stock is about to trade ex-dividend in four days. 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 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. Therefore, if you purchase HeiwadoLtd's shares on or after the 19th of February, you won't be eligible to receive the dividend, when it is paid on the 19th of May.

The company's next dividend payment will be JP¥30.00 per share, and in the last 12 months, the company paid a total of JP¥53.00 per share. Based on the last year's worth of payments, HeiwadoLtd stock has a trailing yield of around 2.2% on the current share price of JP¥2380.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether HeiwadoLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for HeiwadoLtd

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 HeiwadoLtd's payout ratio is modest, at just 34% of profit. 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. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.

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 HeiwadoLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about HeiwadoLtd'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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. HeiwadoLtd has delivered an average of 7.0% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Has HeiwadoLtd got what it takes to maintain its dividend payments? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in HeiwadoLtd for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for HeiwadoLtd that you should be aware of before investing in their shares.

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.