Do These 3 Checks Before Buying Arclands Corporation (TSE:9842) For Its Upcoming Dividend

Arclands Corporation (TSE:9842) stock is about to trade ex-dividend in 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Arclands' shares before the 29th of August in order to receive the dividend, which the company will pay on the 23rd of October.

The company's next dividend payment will be JP¥20.00 per share, on the back of last year when the company paid a total of JP¥40.00 to shareholders. Based on the last year's worth of payments, Arclands stock has a trailing yield of around 2.3% on the current share price of JP¥1771.00. If you buy this business for its dividend, you should have an idea of whether Arclands's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Arclands

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Arclands paying out a modest 29% of its earnings. A useful secondary check can be to evaluate whether Arclands generated enough free cash flow to afford its dividend. Over the past year it paid out 191% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Arclands paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Arclands to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Arclands's earnings per share have been shrinking at 2.1% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Arclands has delivered an average of 8.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Has Arclands got what it takes to maintain its dividend payments? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Arclands is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not that we think Arclands is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Arclands despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 4 warning signs for Arclands (of which 2 can't be ignored!) you should know about.

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.