Is It Smart To Buy Isetan Mitsukoshi Holdings Ltd. (TSE:3099) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Isetan Mitsukoshi Holdings Ltd. (TSE:3099) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Isetan Mitsukoshi Holdings' shares before the 27th of September to receive the dividend, which will be paid on the 11th of December.

The company's next dividend payment will be JP¥24.00 per share, on the back of last year when the company paid a total of JP¥48.00 to shareholders. Last year's total dividend payments show that Isetan Mitsukoshi Holdings has a trailing yield of 2.2% on the current share price of JP¥2147.50. If you buy this business for its dividend, you should have an idea of whether Isetan Mitsukoshi Holdings's dividend is reliable and sustainable. So we need to investigate whether Isetan Mitsukoshi Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Isetan Mitsukoshi 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. Isetan Mitsukoshi Holdings is paying out just 21% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 26% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Isetan Mitsukoshi Holdings'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Isetan Mitsukoshi Holdings's earnings have been skyrocketing, up 37% per annum for the past five years. Isetan Mitsukoshi Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

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, Isetan Mitsukoshi Holdings has increased its dividend at approximately 16% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Isetan Mitsukoshi Holdings an attractive dividend stock, or better left on the shelf? It's great that Isetan Mitsukoshi Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Isetan Mitsukoshi Holdings is facing. In terms of investment risks, we've identified 2 warning signs with Isetan Mitsukoshi Holdings and understanding them should be part of your investment process.

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.