Dividend Investors: Don't Be Too Quick To Buy Y.A.C. Holdings Co., Ltd. (TSE:6298) For Its Upcoming Dividend

It looks like Y.A.C. Holdings Co., Ltd. (TSE:6298) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Meaning, you will need to purchase Y.A.C. Holdings' shares before the 27th of September to receive the dividend, which will be paid on the 6th of December.

The company's next dividend payment will be JP¥35.00 per share. Last year, in total, the company distributed JP¥75.00 to shareholders. Calculating the last year's worth of payments shows that Y.A.C. Holdings has a trailing yield of 3.5% on the current share price of JP¥2122.00. 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 Y.A.C. Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Y.A.C. Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Y.A.C. Holdings paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out an unsustainably high 246% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Y.A.C. Holdings intends to continue funding this dividend, or if it could be forced to cut the payment.

Y.A.C. Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Y.A.C. Holdings's ability to maintain its dividend.

Click here to see how much of its profit Y.A.C. Holdings 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Y.A.C. Holdings earnings per share are up 4.0% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Y.A.C. Holdings has lifted its dividend by approximately 14% a year on average. 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.

To Sum It Up

Has Y.A.C. Holdings got what it takes to maintain its dividend payments? Y.A.C. Holdings is paying out a reasonable percentage of its income and an uncomfortably high 246% of its cash flow as dividends. At least earnings per share have been growing steadily. Bottom line: Y.A.C. Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Y.A.C. Holdings. For example, Y.A.C. Holdings has 3 warning signs (and 1 which makes us a bit uncomfortable) we think 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.