Okuwa Co., Ltd. (TSE:8217) is about to trade ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Okuwa's shares on or after the 19th of August, you won't be eligible to receive the dividend, when it is paid on the 15th of October.
The company's upcoming dividend is JP¥13.00 a share, following on from the last 12 months, when the company distributed a total of JP¥26.00 per share to shareholders. Based on the last year's worth of payments, Okuwa has a trailing yield of 3.2% on the current stock price of JP¥802.00. If you buy this business for its dividend, you should have an idea of whether Okuwa's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Okuwa's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Okuwa didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.
View our latest analysis for Okuwa
Click here to see how much of its profit Okuwa paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Okuwa was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Okuwa's dividend payments are effectively flat on where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
Get our latest analysis on Okuwa's balance sheet health here.
To Sum It Up
From a dividend perspective, should investors buy or avoid Okuwa? It's hard to get used to Okuwa paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Okuwa 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 Okuwa. For example, we've found 1 warning sign for Okuwa that we recommend you consider before investing in the business.
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.