We Wouldn't Be Too Quick To Buy Pola Orbis Holdings Inc. (TSE:4927) Before It Goes Ex-Dividend

It looks like Pola Orbis Holdings Inc. (TSE:4927) is about to go ex-dividend in the next 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Pola Orbis Holdings' shares before the 27th of June to receive the dividend, which will be paid on the 8th of September.

The company's next dividend payment will be JP¥21.00 per share, and in the last 12 months, the company paid a total of JP¥52.00 per share. Based on the last year's worth of payments, Pola Orbis Holdings stock has a trailing yield of around 3.9% on the current share price of JP¥1328.50. If you buy this business for its dividend, you should have an idea of whether Pola Orbis Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Pola Orbis Holdings distributed an unsustainably high 154% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Pola Orbis Holdings generated enough free cash flow to afford its dividend. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Pola Orbis Holdings fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

See our latest analysis for Pola Orbis Holdings

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Pola Orbis Holdings's earnings per share have fallen at approximately 18% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

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, Pola Orbis Holdings has lifted its dividend by approximately 8.3% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Pola Orbis Holdings is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Is Pola Orbis Holdings an attractive dividend stock, or better left on the shelf? It's never fun to see a company's earnings per share in retreat. What's more, Pola Orbis Holdings is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Pola Orbis Holdings.

Although, if you're still interested in Pola Orbis Holdings and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Pola Orbis Holdings and you should be aware of it before buying any shares.

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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.