Only Three Days Left To Cash In On Autobacs Seven's (TSE:9832) Dividend

Autobacs Seven Co., Ltd. (TSE:9832) is about to trade ex-dividend in the next three 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. Therefore, if you purchase Autobacs Seven's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 27th of November.

The company's next dividend payment will be JP¥30.00 per share, on the back of last year when the company paid a total of JP¥60.00 to shareholders. Based on the last year's worth of payments, Autobacs Seven has a trailing yield of 4.1% on the current stock price of JP¥1474.00. If you buy this business for its dividend, you should have an idea of whether Autobacs Seven's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Autobacs Seven

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. It paid out 81% 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 worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Autobacs Seven generated enough free cash flow to afford its dividend. It paid out 89% 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 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.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Autobacs Seven earnings per share are up 2.0% per annum over the last five years. A high payout ratio of 81% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Autobacs Seven could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Autobacs Seven has lifted its dividend by approximately 1.1% a year on average.

Final Takeaway

Should investors buy Autobacs Seven for the upcoming dividend? Earnings per share have been growing modestly and Autobacs Seven paid out a bit over half of its earnings and free cash flow last year. To summarise, Autobacs Seven looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you're not too concerned about Autobacs Seven's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 1 warning sign for Autobacs Seven that you should be aware of before investing in their shares.

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.