Why You Might Be Interested In Kohnan Shoji Co., Ltd. (TSE:7516) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kohnan Shoji Co., Ltd. (TSE:7516) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Kohnan Shoji's shares before the 29th of August in order to receive the dividend, which the company will pay on the 7th of November.

The company's upcoming dividend is JP¥50.00 a share, following on from the last 12 months, when the company distributed a total of JP¥100.00 per share to shareholders. Based on the last year's worth of payments, Kohnan Shoji stock has a trailing yield of around 2.7% on the current share price of JP¥3740.00. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Kohnan Shoji

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kohnan Shoji 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. A useful secondary check can be to evaluate whether Kohnan Shoji generated enough free cash flow to afford its dividend. It paid out 78% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Kohnan Shoji'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 Kohnan Shoji 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 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 Kohnan Shoji earnings per share are up 8.1% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kohnan Shoji has delivered 12% dividend growth per year on average over the past seven years. 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.

The Bottom Line

Is Kohnan Shoji an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and Kohnan Shoji paid out less than half its profits and more than half its free cash flow as dividends over the last year. All things considered, we are not particularly enthused about Kohnan Shoji from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for Kohnan Shoji (1 is significant!) that deserve your attention before investing in the shares.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.