Some investors rely on dividends to grow their wealth. If you are one of these dividend detectives, you might be interested to know that Ryohin Keikaku Co., Ltd. (TSE:7453) will trade ex-dividend in just four days. The ex-dividend date is usually one business day before the record date, which is the date by which you, as a shareholder, must be on record in the company’s books to receive the dividend. It is important to know the ex-dividend date because any trade in the stock must have been settled on or before the record date. Accordingly, Ryohin Keikaku investors who purchase the stock on or after August 29 will not receive the dividend, which is paid on November 24.
The company’s next dividend payment will be JP¥20.00 per share. Over the last year, the company paid out a total of JP¥40.00 to shareholders. Calculating last year’s payments shows that Ryohin Keikaku has a yield of 1.4% on the current share price of JP¥2794.00. Dividends contribute significantly to investment returns for long-term holders, but only if the dividend continues to be paid. So we need to check if dividend payments are covered and if earnings are growing.
Check out our latest analysis on Ryohin Keikaku
Dividends are typically paid out of company profits, so if a company pays out more than it earns, its dividend is usually at higher risk of being cut. Ryohin Keikaku has a low and conservative payout ratio of just 14% of its profit after tax. However, cash flows are even more important than profits when assessing a dividend, so we need to check whether the company generated enough cash to pay its distribution. Fortunately, it only paid out 23% of its free cash flow last year.
It’s positive to see that Ryohin Keikaku’s dividend is covered by both profits and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio usually indicates a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio as well as analyst estimates of its future dividends.
Have earnings and dividends increased?
Companies that aren’t growing earnings can still be valuable, but it’s even more important to assess dividend sustainability if it looks like the company will struggle to grow. 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 explains why we’re not overly pleased with Ryohin Keikaku’s stagnant earnings over the past five years. Certainly, it’s better than seeing them plummet, but the best dividend stocks grow their earnings significantly over the long term. Growth has been weak so far. However, with more than 75% of earnings remaining in the business, there’s plenty of room to reinvest in growth or increase the payout ratio – either of which could increase the dividend.
Most investors judge a company’s dividend prospects primarily based on its historical dividend growth rate. Ryohin Keikaku has achieved an average dividend growth of 9.6% per year over the past 10 years.
To sum it up
Should investors buy Ryohin Keikaku because of its upcoming dividend? Earnings per share have remained flat during that time, but we’re intrigued to see that Ryohin Keikaku is paying out less than half of its earnings and cash flow as dividends. That’s interesting for a couple of reasons, because it suggests that management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We’d prefer to see earnings grow faster, but the best dividend stocks typically combine strong earnings per share growth with a low payout ratio over the long term, and Ryohin Keikaku is halfway there. Overall, we think this is an attractive combination worthy of further investigation.
Curious what other investors think of Ryohin Keikaku? See what analysts are forecasting with this visualization of historical and future estimated earnings and cash flows.
If you are looking for strong dividend payers, we recommend Check out our selection of the highest dividend stocks.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
