Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that West Japan Railway Company (TSE:9021) is about to go ex-dividend in just three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, West Japan Railway investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 30th of November.
The company's next dividend payment will be JP¥48.50 per share. Last year, in total, the company distributed JP¥97.50 to shareholders. Looking at the last 12 months of distributions, West Japan Railway has a trailing yield of approximately 3.2% on its current stock price of JP¥3006.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether West Japan Railway has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately West Japan Railway's payout ratio is modest, at just 38% 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. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that West Japan Railway's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for West Japan Railway
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see West Japan Railway has grown its earnings rapidly, up 59% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, West Japan Railway has lifted its dividend by approximately 3.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because West Japan Railway is keeping back more of its profits to grow the business.
Final Takeaway
Is West Japan Railway 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, West Japan Railway paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
In light of that, while West Japan Railway has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for West Japan Railway 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.