Is It Smart To Buy Kyowa Leather Cloth Co., Ltd. (TSE:3553) Before It Goes Ex-Dividend?

Readers hoping to buy Kyowa Leather Cloth Co., Ltd. (TSE:3553) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Kyowa Leather Cloth's shares before the 27th of September in order to receive the dividend, which the company will pay on the 5th of December.

The company's next dividend payment will be JP¥16.00 per share, on the back of last year when the company paid a total of JP¥32.00 to shareholders. Looking at the last 12 months of distributions, Kyowa Leather Cloth has a trailing yield of approximately 4.9% on its current stock price of JP¥653.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Kyowa Leather Cloth

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. Kyowa Leather Cloth paid out a comfortable 37% of its profit last year. 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. The good news is it paid out just 13% of its free cash flow in the last 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.

Click here to see how much of its profit Kyowa Leather Cloth paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Kyowa Leather Cloth earnings per share are up 7.5% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kyowa Leather Cloth has delivered 14% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Kyowa Leather Cloth? Earnings per share have been growing moderately, and Kyowa Leather Cloth 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. It might be nice to see earnings growing faster, but Kyowa Leather Cloth is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Kyowa Leather Cloth, and we would prioritise taking a closer look at it.

So while Kyowa Leather Cloth looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Kyowa Leather Cloth you should know about.

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.