Don't Race Out To Buy Astena Holdings Co., Ltd. (TSE:8095) Just Because It's Going Ex-Dividend

It looks like Astena Holdings Co., Ltd. (TSE:8095) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Astena Holdings' shares before the 28th of November in order to be eligible for the dividend, which will be paid on the 28th of February.

The company's next dividend payment will be JP¥9.00 per share, on the back of last year when the company paid a total of JP¥18.00 to shareholders. Based on the last year's worth of payments, Astena Holdings stock has a trailing yield of around 3.7% on the current share price of JP¥492.00. If you buy this business for its dividend, you should have an idea of whether Astena Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Astena Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Astena Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Astena Holdings paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. 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. Over the past year it paid out 182% of its free cash flow as dividends, which is uncomfortably 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 Astena Holdings'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. Cash is king, as they say, and were Astena Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Astena Holdings 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Astena Holdings, with earnings per share up 3.5% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Astena Holdings has lifted its dividend by approximately 12% a year on average. 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

Is Astena Holdings worth buying for its dividend? Earnings per share have grown somewhat, although Astena Holdings paid out over half its profits and the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Astena Holdings don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Astena Holdings (1 is a bit concerning!) that you ought to be aware of before buying the shares.

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.