It Might Not Be A Great Idea To Buy HIMARAYA Co.,Ltd. (TSE:7514) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see HIMARAYA Co.,Ltd. (TSE:7514) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase HIMARAYALtd's shares before the 27th of February in order to be eligible for the dividend, which will be paid on the 15th of May.

The company's next dividend payment will be JP¥13.00 per share, and in the last 12 months, the company paid a total of JP¥26.00 per share. Calculating the last year's worth of payments shows that HIMARAYALtd has a trailing yield of 3.0% on the current share price of JP¥865.00. 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 HIMARAYALtd can afford its dividend, and if the dividend could grow.

View our latest analysis for HIMARAYALtd

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. HIMARAYALtd's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If HIMARAYALtd didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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

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 fall far enough, the company could be forced to cut its dividend. HIMARAYALtd reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, HIMARAYALtd has lifted its dividend by approximately 2.7% 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.

Remember, you can always get a snapshot of HIMARAYALtd's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Should investors buy HIMARAYALtd for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of HIMARAYALtd.

With that in mind though, if the poor dividend characteristics of HIMARAYALtd don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 2 warning signs for HIMARAYALtd you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.