Is It Smart To Buy Aucnet Inc. (TSE:3964) Before It Goes Ex-Dividend?

Aucnet Inc. (TSE:3964) stock is about to trade ex-dividend in three 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. 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. In other words, investors can purchase Aucnet's shares before the 27th of December in order to be eligible for the dividend, which will be paid on the 5th of March.

The company's upcoming dividend is JP¥29.00 a share, following on from the last 12 months, when the company distributed a total of JP¥57.00 per share to shareholders. Calculating the last year's worth of payments shows that Aucnet has a trailing yield of 2.2% on the current share price of JP¥2651.00. 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 Aucnet can afford its dividend, and if the dividend could grow.

View our latest analysis for Aucnet

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. That's why it's good to see Aucnet paying out a modest 30% of its earnings. 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. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.

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 Aucnet paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Aucnet's earnings have been skyrocketing, up 25% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last eight years, Aucnet has lifted its dividend by approximately 10% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Aucnet? Aucnet has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past eight years, but the conservative payout ratio makes the current dividend look sustainable. Aucnet looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Aucnet for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Aucnet you should know about.

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