Why It Might Not Make Sense To Buy GMO Financial Holdings, Inc. (TSE:7177) For Its Upcoming Dividend

GMO Financial Holdings, Inc. (TSE:7177) is about to trade ex-dividend in the next 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. 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. This means that investors who purchase GMO Financial Holdings' shares on or after the 27th of December will not receive the dividend, which will be paid on the 24th of March.

The company's next dividend payment will be JP¥11.52 per share, on the back of last year when the company paid a total of JP¥32.80 to shareholders. Based on the last year's worth of payments, GMO Financial Holdings has a trailing yield of 4.8% on the current stock price of JP¥679.00. 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! As a result, readers should always check whether GMO Financial Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for GMO Financial Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. GMO Financial Holdings paid out 75% of its earnings to investors last year, a normal payout level for most businesses.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit GMO Financial Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see GMO Financial Holdings's earnings per share have dropped 9.5% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. GMO Financial Holdings's dividend payments per share have declined at 3.0% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is GMO Financial Holdings worth buying for its dividend? We're not overly enthused to see GMO Financial Holdings's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

So if you're still interested in GMO Financial Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 1 warning sign for GMO Financial Holdings and you should be aware of this before buying any shares.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.