Heiwa Corporation (TSE:6412) Is About To Go Ex-Dividend, And It Pays A 3.6% Yield
It looks like Heiwa Corporation (TSE:6412) is about to go ex-dividend in the next three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Heiwa investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 10th of December.
The company's upcoming dividend is JP¥40.00 a share, following on from the last 12 months, when the company distributed a total of JP¥80.00 per share to shareholders. Based on the last year's worth of payments, Heiwa has a trailing yield of 3.6% on the current stock price of JP¥2197.00. If you buy this business for its dividend, you should have an idea of whether Heiwa'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 from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Heiwa paid out 69% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (85%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Heiwa'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.
View our latest analysis for Heiwa
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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Heiwa has grown its earnings rapidly, up 68% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Heiwa dividends are largely the same as they were 10 years ago.
The Bottom Line
From a dividend perspective, should investors buy or avoid Heiwa? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Heiwa's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 69% and 85% respectively. All things considered, we are not particularly enthused about Heiwa from a dividend perspective.
So while Heiwa looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 2 warning signs with Heiwa (at least 1 which is significant), and understanding these should be part of your investment process.
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.