It Might Not Be A Great Idea To Buy Ezaki Glico Co., Ltd. (TSE:2206) For Its Next Dividend

Readers hoping to buy Ezaki Glico Co., Ltd. (TSE:2206) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Ezaki Glico's shares on or after the 27th of December will not receive the dividend, which will be paid on the 7th of March.

The company's next dividend payment will be JP¥45.00 per share, on the back of last year when the company paid a total of JP¥90.00 to shareholders. Based on the last year's worth of payments, Ezaki Glico stock has a trailing yield of around 1.9% on the current share price of JP¥4740.00. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Ezaki Glico

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ezaki Glico is paying out an acceptable 58% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. 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 Ezaki Glico's earnings per share have dropped 5.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ezaki Glico has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Has Ezaki Glico got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least Ezaki Glico's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: Ezaki Glico has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Ezaki Glico don't faze you, it's worth being mindful of the risks involved with this business. For example - Ezaki Glico has 2 warning signs we think you should be aware of.

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.