DCM Holdings Co., Ltd. (TSE:3050) Looks Interesting, And It's About To Pay A Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that DCM Holdings Co., Ltd. (TSE:3050) is about to go ex-dividend in just three days. Typically, the ex-dividend date is two business days 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. This means that investors who purchase DCM Holdings' shares on or after the 28th of August will not receive the dividend, which will be paid on the 4th of November.

The company's next dividend payment will be JP¥23.00 per share. Last year, in total, the company distributed JP¥46.00 to shareholders. Last year's total dividend payments show that DCM Holdings has a trailing yield of 3.1% on the current share price of JP¥1508.00. If you buy this business for its dividend, you should have an idea of whether DCM Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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 DCM Holdings paying out a modest 35% 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. Thankfully its dividend payments took up just 30% 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.

View our latest analysis for DCM Holdings

Click here to see how much of its profit DCM Holdings 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. With that in mind, we're encouraged by the steady growth at DCM Holdings, with earnings per share up 4.6% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, DCM Holdings has lifted its dividend by approximately 8.7% 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.

To Sum It Up

Should investors buy DCM Holdings for the upcoming dividend? Earnings per share growth has been growing somewhat, and DCM Holdings 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 DCM Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. DCM Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in DCM Holdings for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for DCM Holdings you should be aware of.

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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.