Here's What We Like About Ryohin Keikaku's (TSE:7453) Upcoming Dividend

Readers hoping to buy Ryohin Keikaku Co., Ltd. (TSE:7453) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Ryohin Keikaku's shares on or after the 27th of February will not receive the dividend, which will be paid on the 1st of May.

The company's next dividend payment will be JP¥22.00 per share. Last year, in total, the company distributed JP¥44.00 to shareholders. Based on the last year's worth of payments, Ryohin Keikaku has a trailing yield of 1.1% on the current stock price of JP¥4138.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Ryohin Keikaku can afford its dividend, and if the dividend could grow.

View our latest analysis for Ryohin Keikaku

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ryohin Keikaku paid out a comfortable 29% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Ryohin Keikaku'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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Ryohin Keikaku earnings per share are up 9.8% per annum over the last five years. Decent historical earnings per share growth suggests Ryohin Keikaku has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Ryohin Keikaku has increased its dividend at approximately 9.7% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Ryohin Keikaku for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that Ryohin Keikaku is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's hard to get excited about Ryohin Keikaku from a dividend perspective.

Ever wonder what the future holds for Ryohin Keikaku? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.