Is It Smart To Buy Tokyo Metro Co., Ltd. (TSE:9023) Before It Goes Ex-Dividend?
Readers hoping to buy Tokyo Metro Co., Ltd. (TSE:9023) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Tokyo Metro investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 9th of December.
The company's upcoming dividend is JP¥22.00 a share, following on from the last 12 months, when the company distributed a total of JP¥44.00 per share to shareholders. Based on the last year's worth of payments, Tokyo Metro has a trailing yield of 2.9% on the current stock price of JP¥1533.00. If you buy this business for its dividend, you should have an idea of whether Tokyo Metro's dividend is reliable and sustainable. As a result, readers should always check whether Tokyo Metro has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tokyo Metro paid out a comfortable 46% of its profit last year. A useful secondary check can be to evaluate whether Tokyo Metro generated enough free cash flow to afford its dividend. It paid out 84% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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.
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Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Tokyo Metro's earnings have been skyrocketing, up 30% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tokyo Metro has delivered 4.9% dividend growth per year on average over the past two years. Earnings per share have been growing much quicker than dividends, potentially because Tokyo Metro is keeping back more of its profits to grow the business.
The Bottom Line
Has Tokyo Metro got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Tokyo Metro paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.
So while Tokyo Metro looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Tokyo Metro you should know about.
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.