Just Three Days Till Kaneko Seeds Co., Ltd. (TSE:1376) Will Be Trading Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kaneko Seeds Co., Ltd. (TSE:1376) is about to trade ex-dividend in the next 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Kaneko Seeds investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 28th of August.

The company's next dividend payment will be JP¥20.00 per share, on the back of last year when the company paid a total of JP¥31.00 to shareholders. Last year's total dividend payments show that Kaneko Seeds has a trailing yield of 2.2% on the current share price of JP¥1436.00. If you buy this business for its dividend, you should have an idea of whether Kaneko Seeds's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Kaneko Seeds

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. Kaneko Seeds has a low and conservative payout ratio of just 19% of its income after tax. A useful secondary check can be to evaluate whether Kaneko Seeds generated enough free cash flow to afford its dividend. It paid out an unsustainably high 291% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Kaneko Seeds does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Kaneko Seeds's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Kaneko Seeds's ability to maintain its dividend.

Click here to see how much of its profit Kaneko Seeds 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. This is why it's a relief to see Kaneko Seeds earnings per share are up 4.8% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, Kaneko Seeds has lifted its dividend by approximately 4.0% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Kaneko Seeds? Kaneko Seeds delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 291% of its cash flow over the last year, which is a mediocre outcome. To summarise, Kaneko Seeds looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you're not too concerned about Kaneko Seeds's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. In terms of investment risks, we've identified 1 warning sign with Kaneko Seeds and understanding them should be part of your investment process.

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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.