Dividend Investors: Don't Be Too Quick To Buy LAC Co., Ltd. (TSE:3857) For Its Upcoming Dividend

Readers hoping to buy LAC Co., Ltd. (TSE:3857) 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 one business day before the record date which is the date on which a company determines the shareholders eligible 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 LAC's shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be JP¥12.00 per share, and in the last 12 months, the company paid a total of JP¥27.00 per share. Based on the last year's worth of payments, LAC stock has a trailing yield of around 3.6% on the current share price of JP¥743.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether LAC can afford its dividend, and if the dividend could grow.

See our latest analysis for LAC

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. LAC paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. 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. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 LAC paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. LAC's earnings per share have fallen at approximately 5.2% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. LAC has delivered 8.4% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

From a dividend perspective, should investors buy or avoid LAC? While earnings per share are shrinking, it's encouraging to see that at least LAC's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think LAC is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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 LAC. Every company has risks, and we've spotted 1 warning sign for LAC you should know about.

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.