Should You Buy ABC-Mart,Inc. (TSE:2670) For Its Upcoming Dividend?

Readers hoping to buy ABC-Mart,Inc. (TSE:2670) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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 ABC-MartInc's shares before the 27th of February in order to be eligible for the dividend, which will be paid on the 29th of May.

The company's upcoming dividend is JP¥37.00 a share, following on from the last 12 months, when the company distributed a total of JP¥66.00 per share to shareholders. Calculating the last year's worth of payments shows that ABC-MartInc has a trailing yield of 2.2% on the current share price of JP¥2957.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for ABC-MartInc

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see ABC-MartInc paying out a modest 39% of its earnings. A useful secondary check can be to evaluate whether ABC-MartInc generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 25% of the free cash flow it generated, which is a comfortable payout ratio.

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 the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see ABC-MartInc earnings per share are up 7.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, ABC-MartInc has increased its dividend at approximately 13% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid ABC-MartInc? Earnings per share growth has been growing somewhat, and ABC-MartInc 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and ABC-MartInc is halfway there. There's a lot to like about ABC-MartInc, and we would prioritise taking a closer look at it.

While it's tempting to invest in ABC-MartInc for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for ABC-MartInc 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.