Should Income Investors Look At Capital Asset Planning, Inc. (TSE:3965) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Capital Asset Planning, Inc. (TSE:3965) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase Capital Asset Planning's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 25th of December.

The company's next dividend payment will be JP¥7.50 per share. Last year, in total, the company distributed JP¥16.00 to shareholders. Last year's total dividend payments show that Capital Asset Planning has a trailing yield of 2.0% on the current share price of JP¥810.00. If you buy this business for its dividend, you should have an idea of whether Capital Asset Planning's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Capital Asset Planning

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. Capital Asset Planning paid out a comfortable 46% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.

It's positive to see that Capital Asset Planning's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Capital Asset Planning's 15% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Capital Asset Planning has seen its dividend decline 1.8% per annum on average over the past five years, which is not great to see.

To Sum It Up

Has Capital Asset Planning got what it takes to maintain its dividend payments? Capital Asset Planning has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. All things considered, we are not particularly enthused about Capital Asset Planning from a dividend perspective.

In light of that, while Capital Asset Planning has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 3 warning signs for Capital Asset Planning (1 is a bit unpleasant) you should be aware of.

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.