Why You Might Be Interested In Commerce One Holdings Inc. (TSE:4496) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Commerce One Holdings Inc. (TSE:4496) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Commerce One Holdings' shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 9th of December.

The company's next dividend payment will be JP¥10.00 per share, on the back of last year when the company paid a total of JP¥20.00 to shareholders. Calculating the last year's worth of payments shows that Commerce One Holdings has a trailing yield of 2.7% on the current share price of JP¥740.00. If you buy this business for its dividend, you should have an idea of whether Commerce One Holdings'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 Commerce One Holdings

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. Fortunately Commerce One Holdings's payout ratio is modest, at just 35% 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. Thankfully its dividend payments took up just 50% of the free cash flow it generated, which is a comfortable payout ratio.

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 Commerce One Holdings 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, we're encouraged by the steady growth at Commerce One Holdings, with earnings per share up 4.9% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Given that Commerce One Holdings has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Is Commerce One Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Commerce One Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Commerce One Holdings is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Commerce One Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Commerce One Holdings and you should be aware of them before buying any shares.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.