There's A Lot To Like About DIGITAL HEARTS HOLDINGS' (TSE:3676) Upcoming JP¥12.50 Dividend

Readers hoping to buy DIGITAL HEARTS HOLDINGS Co., Ltd. (TSE:3676) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase DIGITAL HEARTS HOLDINGS' shares before the 28th of March to receive the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be JP¥12.50 per share. Last year, in total, the company distributed JP¥21.00 to shareholders. Looking at the last 12 months of distributions, DIGITAL HEARTS HOLDINGS has a trailing yield of approximately 2.0% on its current stock price of JP¥1074.00. 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! As a result, readers should always check whether DIGITAL HEARTS HOLDINGS has been able to grow its dividends, or if the dividend might be cut.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see DIGITAL HEARTS HOLDINGS paying out a modest 29% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

Check out our latest analysis for DIGITAL HEARTS HOLDINGS

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that DIGITAL HEARTS HOLDINGS's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, DIGITAL HEARTS HOLDINGS has increased its dividend at approximately 11% a year on average.

The Bottom Line

Is DIGITAL HEARTS HOLDINGS an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we're intrigued to see that DIGITAL HEARTS HOLDINGS is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and DIGITAL HEARTS HOLDINGS is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while DIGITAL HEARTS HOLDINGS has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for DIGITAL HEARTS HOLDINGS that you should be aware of before investing in their shares.

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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.