Here's What We Like About TOWLtd's (TSE:4767) Upcoming Dividend

TOW Co.,Ltd. (TSE:4767) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase TOWLtd's shares before the 27th of December in order to be eligible for the dividend, which will be paid on the 6th of March.

The company's upcoming dividend is JP¥7.50 a share, following on from the last 12 months, when the company distributed a total of JP¥15.00 per share to shareholders. Based on the last year's worth of payments, TOWLtd has a trailing yield of 4.8% on the current stock price of JP¥314.00. 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 investigate whether TOWLtd can afford its dividend, and if the dividend could grow.

View our latest analysis for TOWLtd

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. That's why it's good to see TOWLtd paying out a modest 41% of its earnings. 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. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

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 TOWLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see TOWLtd earnings per share are up 2.6% per annum over the last five years. Earnings per share growth in recent times has not been a standout. 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TOWLtd has delivered 9.1% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid TOWLtd? Earnings per share growth has been growing somewhat, and TOWLtd is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but TOWLtd is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about TOWLtd, and we would prioritise taking a closer look at it.

In light of that, while TOWLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that TOWLtd is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious...

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.