Is It Smart To Buy Tone Co., Ltd. (TSE:5967) Before It Goes Ex-Dividend?
Readers hoping to buy Tone Co., Ltd. (TSE:5967) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Thus, you can purchase Tone's shares before the 28th of May in order to receive the dividend, which the company will pay on the 10th of August.
The company's next dividend payment will be JP¥9.00 per share, on the back of last year when the company paid a total of JP¥9.00 to shareholders. Looking at the last 12 months of distributions, Tone has a trailing yield of approximately 1.9% on its current stock price of JP¥469.00. If you buy this business for its dividend, you should have an idea of whether Tone's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. Tone has a low and conservative payout ratio of just 22% of its income after tax. A useful secondary check can be to evaluate whether Tone generated enough free cash flow to afford its dividend. The good news is it paid out just 11% of its free cash flow in the last year.
It's positive to see that Tone'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.
Check out our latest analysis for Tone
Click here to see how much of its profit Tone 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Tone earnings per share are up 5.3% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Tone has lifted its dividend by approximately 4.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Has Tone got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Tone is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Tone is halfway there. It's a promising combination that should mark this company worthy of closer attention.
So while Tone looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Tone has 1 warning sign we think you should be aware of.
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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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.