We Wouldn't Be Too Quick To Buy Rock Field Co.,Ltd. (TSE:2910) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Rock Field Co.,Ltd. (TSE:2910) is about to go ex-dividend in just 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase Rock FieldLtd's shares before the 28th of April in order to receive the dividend, which the company will pay on the 29th of July.

The company's upcoming dividend is JP¥14.00 a share, following on from the last 12 months, when the company distributed a total of JP¥23.00 per share to shareholders. Based on the last year's worth of payments, Rock FieldLtd has a trailing yield of 1.4% on the current stock price of JP¥1619.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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. Over the last year it paid out 50% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Rock FieldLtd'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.

Check out our latest analysis for Rock FieldLtd

Click here to see how much of its profit Rock FieldLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Rock FieldLtd's earnings per share have dropped 15% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Rock FieldLtd has lifted its dividend by approximately 1.4% a year on average.

To Sum It Up

Has Rock FieldLtd got what it takes to maintain its dividend payments? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Rock FieldLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 2 warning signs for Rock FieldLtd 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.