Should Income Investors Look At BIKE O & COMPANY Ltd. (TSE:3377) Before Its Ex-Dividend?

BIKE O & COMPANY Ltd. (TSE:3377) is about to trade ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase BIKE O's shares before the 29th of May to receive the dividend, which will be paid on the 1st of August.

The company's next dividend payment will be JP¥5.50 per share. Last year, in total, the company distributed JP¥11.00 to shareholders. Based on the last year's worth of payments, BIKE O has a trailing yield of 2.7% on the current stock price of JP¥411.00. If you buy this business for its dividend, you should have an idea of whether BIKE O's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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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. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether BIKE O generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.

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.

Check out our latest analysis for BIKE O

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend.

Given that BIKE O has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Has BIKE O got what it takes to maintain its dividend payments? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, BIKE O doesn't stand out from a dividend perspective. In summary, while it has some positive characteristics, we're not inclined to race out and buy BIKE O today.

So if you want to do more digging on BIKE O, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 3 warning signs for BIKE O you should be aware of.

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.