It Might Not Be A Great Idea To Buy MORESCO Corporation (TSE:5018) For Its Next Dividend

MORESCO Corporation (TSE:5018) is about to trade ex-dividend in the next 4 days. 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. In other words, investors can purchase MORESCO's shares before the 29th of August in order to be eligible for the dividend, which will be paid on the 13th of November.

The company's next dividend payment will be JP¥20.00 per share, on the back of last year when the company paid a total of JP¥45.00 to shareholders. Calculating the last year's worth of payments shows that MORESCO has a trailing yield of 3.6% on the current share price of JP¥1263.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether MORESCO has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for MORESCO

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. That's why it's good to see MORESCO paying out a modest 28% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. MORESCO paid out more free cash flow than it generated - 170%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While MORESCO's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to MORESCO's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that MORESCO's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, MORESCO has lifted its dividend by approximately 6.1% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid MORESCO? It's disappointing to see earnings per share have fallen slightly, even though MORESCO is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not that we think MORESCO is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in MORESCO and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for MORESCO that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.