Dividend Investors: Don't Be Too Quick To Buy H.U. Group Holdings, Inc. (TSE:4544) For Its Upcoming Dividend

H.U. Group Holdings, Inc. (TSE:4544) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days 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. 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. Meaning, you will need to purchase H.U. Group Holdings' shares before the 28th of March to receive the dividend, which will be paid on the 28th of May.

The company's next dividend payment will be JP¥63.00 per share. Last year, in total, the company distributed JP¥125 to shareholders. Calculating the last year's worth of payments shows that H.U. Group Holdings has a trailing yield of 4.5% on the current share price of JP¥2767.00. If you buy this business for its dividend, you should have an idea of whether H.U. Group Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. H.U. Group Holdings reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. H.U. Group Holdings paid out more free cash flow than it generated - 138%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Check out our latest analysis for H.U. Group Holdings

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. H.U. Group Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

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, H.U. Group Holdings has lifted its dividend by approximately 3.1% a year on average.

We update our analysis on H.U. Group Holdings every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is H.U. Group Holdings worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering H.U. Group Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. For example - H.U. Group Holdings has 1 warning sign we think you should be aware of.

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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.