Is It Smart To Buy AFC-HD AMS Life Science Co., Ltd. (TYO:2927) Before It Goes Ex-Dividend?

Readers hoping to buy AFC-HD AMS Life Science Co., Ltd. (TYO:2927) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 25th of February will not receive this dividend, which will be paid on the 27th of May.

AFC-HD AMS Life Science's next dividend payment will be JP¥12.50 per share, on the back of last year when the company paid a total of JP¥20.00 to shareholders. Last year's total dividend payments show that AFC-HD AMS Life Science has a trailing yield of 2.0% on the current share price of ¥1003. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for AFC-HD AMS Life Science

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately AFC-HD AMS Life Science's payout ratio is modest, at just 32% of profit. A useful secondary check can be to evaluate whether AFC-HD AMS Life Science generated enough free cash flow to afford its dividend. It distributed 38% of its free cash flow as dividends, a comfortable payout level 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 how much of its profit AFC-HD AMS Life Science paid out over the last 12 months.

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 AFC-HD AMS Life Science earnings per share are up 4.6% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

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, AFC-HD AMS Life Science has lifted its dividend by approximately 7.2% 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.

To Sum It Up

Should investors buy AFC-HD AMS Life Science for the upcoming dividend? Earnings per share have been growing moderately, and AFC-HD AMS Life Science 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 AFC-HD AMS Life Science is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in AFC-HD AMS Life Science for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for AFC-HD AMS Life Science and you should be aware of it before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you’re looking to trade AFC-HD AMS Life Science, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.