Is It Smart To Buy Tenmaya Store Co., Ltd. (TSE:9846) Before It Goes Ex-Dividend?

Tenmaya Store Co., Ltd. (TSE:9846) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Tenmaya Store's shares on or after the 27th of February, you won't be eligible to receive the dividend, when it is paid on the 26th of May.

The company's next dividend payment will be JP¥7.00 per share, and in the last 12 months, the company paid a total of JP¥14.00 per share. Looking at the last 12 months of distributions, Tenmaya Store has a trailing yield of approximately 1.4% on its current stock price of JP¥994.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Tenmaya Store can afford its dividend, and if the dividend could grow.

View our latest analysis for Tenmaya Store

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tenmaya Store paid out just 9.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 3.4% of its free cash flow in the 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 Tenmaya Store paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Tenmaya Store, with earnings per share up 3.5% on average over the last five years. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Tenmaya Store has increased its dividend at approximately 11% 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.

To Sum It Up

Has Tenmaya Store got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Tenmaya Store is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Tenmaya Store is halfway there. There's a lot to like about Tenmaya Store, and we would prioritise taking a closer look at it.

While it's tempting to invest in Tenmaya Store for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Tenmaya Store and understanding them should be part of your investment process.

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.