It looks like UT Group Co.,Ltd. (TSE:2146) is about to go ex-dividend in the next 4 days. The ex-dividend date is commonly two business days 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. 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 UT GroupLtd's shares before the 29th of September in order to be eligible for the dividend, which will be paid on the .
The company's next dividend payment will be JP¥2.70 per share. Last year, in total, the company distributed JP¥10.23 to shareholders. Last year's total dividend payments show that UT GroupLtd has a trailing yield of 4.3% on the current share price of JP¥239.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Last year, UT GroupLtd paid out 98% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether UT GroupLtd generated enough free cash flow to afford its dividend. It paid out 107% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
UT GroupLtd 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.
As UT GroupLtd's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
See our latest analysis for UT GroupLtd
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see UT GroupLtd's earnings per share have risen 14% per annum over the last five years. We're a bit put out by the fact that UT GroupLtd paid out virtually all of its earnings and cashflow as dividends over the last year. Earnings are growing at a decent clip, so this payout ratio may prove sustainable, but it's not great to see.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past seven years, UT GroupLtd has increased its dividend at approximately 23% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Should investors buy UT GroupLtd for the upcoming dividend? While it's nice to see earnings per share growing, we're curious about how UT GroupLtd intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering UT GroupLtd as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 3 warning signs with UT GroupLtd (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.