It looks like PARK24 Co., Ltd. (TSE:4666) is about to go ex-dividend in the next four 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. 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. Meaning, you will need to purchase PARK24's shares before the 29th of October to receive the dividend, which will be paid on the 30th of January.
The company's upcoming dividend is JP¥65.00 a share, following on from the last 12 months, when the company distributed a total of JP¥65.00 per share to shareholders. Looking at the last 12 months of distributions, PARK24 has a trailing yield of approximately 3.6% on its current stock price of JP¥1814.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. PARK24 has a low and conservative payout ratio of just 12% of its income after tax. 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. It paid out an unsustainably high 250% 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.
While PARK24's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were PARK24 to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
See our latest analysis for PARK24
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see PARK24's earnings have been skyrocketing, up 58% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. PARK24 has delivered 0.8% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Should investors buy PARK24 for the upcoming dividend? We like that PARK24 has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of PARK24's dividend merits.
So while PARK24 looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 4 warning signs for PARK24 (of which 2 are a bit concerning!) you should know about.
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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