Income Investors Should Know That Area Quest Inc. (TSE:8912) Goes Ex-Dividend Soon

Readers hoping to buy Area Quest Inc. (TSE:8912) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Area Quest's shares before the 27th of June in order to receive the dividend, which the company will pay on the 27th of September.

The company's next dividend payment will be JP¥3.00 per share. Last year, in total, the company distributed JP¥3.00 to shareholders. Calculating the last year's worth of payments shows that Area Quest has a trailing yield of 1.7% on the current share price of JP¥180.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Area Quest can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Area Quest

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. Fortunately Area Quest's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether Area Quest generated enough free cash flow to afford its dividend. Luckily it paid out just 21% of its free cash flow last year.

It's positive to see that Area Quest's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Area Quest's earnings per share have dropped 9.1% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Area Quest has delivered 13% dividend growth per year on average over the past nine years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Area Quest? Area Quest has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Be aware that Area Quest is showing 4 warning signs in our investment analysis, and 2 of those are significant...

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com