Ateam Holdings Co., Ltd. (TSE:3662) is about to trade ex-dividend in the next two days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Ateam Holdings' shares before the 30th of July in order to receive the dividend, which the company will pay on the 8th of October.
The company's next dividend payment will be JP¥14.00 per share. Last year, in total, the company distributed JP¥28.00 to shareholders. Based on the last year's worth of payments, Ateam Holdings has a trailing yield of 2.8% on the current stock price of JP¥1000.00. If you buy this business for its dividend, you should have an idea of whether Ateam Holdings's dividend is reliable and sustainable. So we need to investigate whether Ateam Holdings can afford its dividend, and if the dividend could grow.
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. Ateam Holdings paid out 182% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Ateam Holdings generated enough free cash flow to afford its dividend. It paid out an unsustainably high 337% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Ateam Holdings 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.
Cash is slightly more important than profit from a dividend perspective, but given Ateam Holdings's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Check out our latest analysis for Ateam Holdings
Click here to see how much of its profit Ateam Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Ateam Holdings has grown its earnings rapidly, up 37% a year for the past five years. Earnings per share are increasing at a rapid rate, but the company is paying out more than we think is sustainable, based on current earnings. Generally, when a company is paying out more than it earned as dividends, it could signal either that the company is spending heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Ateam Holdings has lifted its dividend by approximately 6.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Ateam Holdings? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. It's not that we think Ateam Holdings 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 Ateam Holdings. To that end, you should learn about the 3 warning signs we've spotted with Ateam Holdings (including 1 which is concerning).
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.