Income Investors Should Know That TOKAI Corp. (TSE:9729) Goes Ex-Dividend Soon

It looks like TOKAI Corp. (TSE:9729) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase TOKAI's shares on or after the 29th of September will not receive the dividend, which will be paid on the 9th of December.

The company's next dividend payment will be JP¥34.00 per share. Last year, in total, the company distributed JP¥58.00 to shareholders. Based on the last year's worth of payments, TOKAI stock has a trailing yield of around 2.6% on the current share price of JP¥2243.00. If you buy this business for its dividend, you should have an idea of whether TOKAI's dividend is reliable and sustainable. So we need to investigate whether TOKAI can afford its dividend, and if the dividend could grow.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately TOKAI's payout ratio is modest, at just 45% of profit. A useful secondary check can be to evaluate whether TOKAI generated enough free cash flow to afford its dividend. Fortunately, it paid out only 40% of its free cash flow in the past year.

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.

View our latest analysis for TOKAI

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see TOKAI's earnings per share have been shrinking at 2.5% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, TOKAI has lifted its dividend by approximately 14% a year on average.

The Bottom Line

Should investors buy TOKAI for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. All things considered, we are not particularly enthused about TOKAI from a dividend perspective.

While it's tempting to invest in TOKAI for the dividends alone, you should always be mindful of the risks involved. For example - TOKAI has 3 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.