Should You Buy ID Holdings Corporation (TSE:4709) For Its Upcoming Dividend?

Readers hoping to buy ID Holdings Corporation (TSE:4709) 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 ID Holdings' 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 upcoming dividend is JP¥25.00 a share, following on from the last 12 months, when the company distributed a total of JP¥50.00 per share to shareholders. Last year's total dividend payments show that ID Holdings has a trailing yield of 3.6% on the current share price of JP¥1399.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for ID 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. ID Holdings paid out a comfortable 49% 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. Over the last year it paid out 70% of its free cash flow as dividends, within the usual range 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.

Click here to see how much of its profit ID 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see ID Holdings's earnings per share have risen 11% per annum over the last five years. ID Holdings is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, ID Holdings has lifted its dividend by approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is ID Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, ID Holdings paid out less than half its earnings and a bit over half its free cash flow. ID Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while ID Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - ID Holdings has 1 warning sign we think 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.