Only Three Days Left To Cash In On Information Planning's (TSE:3712) Dividend

Information Planning CO., LTD. (TSE:3712) is about to trade ex-dividend in the next three 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. 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. In other words, investors can purchase Information Planning's shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 23rd of December.

The company's upcoming dividend is JP¥50.00 a share, following on from the last 12 months, when the company distributed a total of JP¥100.00 per share to shareholders. Based on the last year's worth of payments, Information Planning has a trailing yield of 2.3% on the current stock price of JP¥4275.00. If you buy this business for its dividend, you should have an idea of whether Information Planning's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Information Planning

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Information Planning's payout ratio is modest, at just 32% of profit. 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. Information Planning paid out more free cash flow than it generated - 174%, to be precise - last year, which we think is concerningly 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.

Information Planning does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Information Planning 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 Information Planning's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, it's good to see earnings have grown 4.3% on last year. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last two years, Information Planning has lifted its dividend by approximately 5.4% 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

Is Information Planning an attractive dividend stock, or better left on the shelf? Information Planning has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

If you're not too concerned about Information Planning's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 3 warning signs for Information Planning you should know about.

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.