There's A Lot To Like About Treasure FactoryLTD's (TSE:3093) Upcoming JP¥16.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Treasure Factory Co.,LTD. (TSE:3093) is about to trade ex-dividend in the next three 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. Accordingly, Treasure FactoryLTD investors that purchase the stock on or after the 27th of February will not receive the dividend, which will be paid on the 30th of May.

The company's upcoming dividend is JP¥16.00 a share, following on from the last 12 months, when the company distributed a total of JP¥34.00 per share to shareholders. Last year's total dividend payments show that Treasure FactoryLTD has a trailing yield of 2.3% on the current share price of JP¥1460.00. If you buy this business for its dividend, you should have an idea of whether Treasure FactoryLTD's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Treasure FactoryLTD

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. Treasure FactoryLTD paid out just 14% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Treasure FactoryLTD'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 Treasure FactoryLTD 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. That's why it's comforting to see Treasure FactoryLTD's earnings have been skyrocketing, up 35% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

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, Treasure FactoryLTD has lifted its dividend by approximately 20% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Treasure FactoryLTD? Treasure FactoryLTD has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Treasure FactoryLTD for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for Treasure FactoryLTD you should be aware of.

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.