Should You Buy Joyful Honda Co.,Ltd. (TSE:3191) For Its Upcoming Dividend?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Joyful Honda Co.,Ltd. (TSE:3191) is about to trade ex-dividend in the next four 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. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Joyful HondaLtd's shares on or after the 18th of December will not receive the dividend, which will be paid on the 9th of March.
The company's next dividend payment will be JP¥42.00 per share. Last year, in total, the company distributed JP¥84.00 to shareholders. Based on the last year's worth of payments, Joyful HondaLtd stock has a trailing yield of around 4.0% on the current share price of JP¥2126.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Joyful HondaLtd paid out a comfortable 40% of its profit last year. A useful secondary check can be to evaluate whether Joyful HondaLtd generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 43% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Check out our latest analysis for Joyful HondaLtd
Click here to see how much of its profit Joyful HondaLtd paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why we're optimistic about Joyful HondaLtd's earnings, which have ripped higher, up 50% over the past year. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.
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, Joyful HondaLtd has lifted its dividend by approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Joyful HondaLtd an attractive dividend stock, or better left on the shelf? Joyful HondaLtd has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
Want to learn more about Joyful HondaLtd's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.