Toho Holdings (TSE:8129) Could Be A Buy For Its Upcoming Dividend

Toho Holdings Co., Ltd. (TSE:8129) stock is about to trade ex-dividend in three days. 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 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. Accordingly, Toho Holdings investors that purchase the stock on or after the 27th of September will not receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥25.00 per share, on the back of last year when the company paid a total of JP¥50.00 to shareholders. Last year's total dividend payments show that Toho Holdings has a trailing yield of 1.1% on the current share price of JP¥4633.00. If you buy this business for its dividend, you should have an idea of whether Toho Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Toho Holdings

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. Toho Holdings 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. What's good is that dividends were well covered by free cash flow, with the company paying out 4.0% of its cash flow last year.

It's positive to see that Toho Holdings'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. This is why it's a relief to see Toho Holdings earnings per share are up 9.9% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Toho Holdings has lifted its dividend by approximately 9.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Toho Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Toho Holdings 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Toho Holdings is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Toho Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Toho Holdings has 1 warning sign we think you should be aware of.

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.