Ito En, Ltd. (TSE:2593) Looks Interesting, And It's About To Pay A Dividend

It looks like Ito En, Ltd. (TSE:2593) is about to go 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, Ito En investors that purchase the stock on or after the 26th of April will not receive the dividend, which will be paid on the 29th of July.

The company's next dividend payment will be JP¥21.00 per share, on the back of last year when the company paid a total of JP¥42.00 to shareholders. Last year's total dividend payments show that Ito En has a trailing yield of 1.1% on the current share price of JP¥3751.00. If you buy this business for its dividend, you should have an idea of whether Ito En'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 Ito En

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ito En is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Ito En'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Ito En, with earnings per share up 6.7% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ito En has delivered 1.0% dividend growth per year on average over the past 10 years.

To Sum It Up

Should investors buy Ito En for the upcoming dividend? Earnings per share have been growing moderately, and Ito En is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Ito En is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Ito En, and we would prioritise taking a closer look at it.

Curious what other investors think of Ito En? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.