Dividend Investors: Don't Be Too Quick To Buy Izumi Co., Ltd. (TSE:8273) For Its Upcoming Dividend

Izumi Co., Ltd. (TSE:8273) is about to trade ex-dividend in the next four 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. 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. Accordingly, Izumi investors that purchase the stock on or after the 29th of August will not receive the dividend, which will be paid on the 18th of November.

The company's next dividend payment will be JP¥45.00 per share, and in the last 12 months, the company paid a total of JP¥88.00 per share. Calculating the last year's worth of payments shows that Izumi has a trailing yield of 2.6% on the current share price of JP¥3418.00. If you buy this business for its dividend, you should have an idea of whether Izumi's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Izumi

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. That's why it's good to see Izumi paying out a modest 31% of its earnings. A useful secondary check can be to evaluate whether Izumi generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 201% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Izumi is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Izumi's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Izumi's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Izumi's earnings are down 2.7% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Izumi has increased its dividend at approximately 8.4% a year on average.

Final Takeaway

Should investors buy Izumi for the upcoming dividend? Izumi's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Izumi and want to know more, you'll find it very useful to know what risks this stock faces. For example - Izumi has 1 warning sign we think 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.