Dividend Investors: Don't Be Too Quick To Buy Seven Bank, Ltd. (TSE:8410) For Its Upcoming Dividend
It looks like Seven Bank, Ltd. (TSE:8410) is about to go ex-dividend in the next 3 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. 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. Meaning, you will need to purchase Seven Bank's shares before the 29th of September to receive the dividend, which will be paid on the 1st of December.
The company's next dividend payment will be JP¥5.50 per share, and in the last 12 months, the company paid a total of JP¥11.00 per share. Last year's total dividend payments show that Seven Bank has a trailing yield of 3.2% on the current share price of JP¥340.90. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Check out our latest analysis for Seven Bank
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Seven Bank's earnings per share have fallen at approximately 9.2% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Seven Bank has lifted its dividend by approximately 2.6% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Seven Bank is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
Is Seven Bank an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Seven Bank's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. Seven Bank doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
With that in mind though, if the poor dividend characteristics of Seven Bank don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 2 warning signs for Seven Bank that we recommend you consider before investing in the business.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.