Why It Might Not Make Sense To Buy Commerce One Holdings Inc. (TSE:4496) 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 Commerce One Holdings Inc. (TSE:4496) is about to trade ex-dividend in the next three days. 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 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. Therefore, if you purchase Commerce One Holdings' shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 8th of December.
The company's next dividend payment will be JP¥21.00 per share. Last year, in total, the company distributed JP¥22.00 to shareholders. Last year's total dividend payments show that Commerce One Holdings has a trailing yield of 2.9% on the current share price of JP¥767.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Commerce One Holdings can afford its dividend, and if the dividend could grow.
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. Commerce One Holdings paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Commerce One Holdings generated enough free cash flow to afford its dividend. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Commerce One Holdings'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.
See our latest analysis for Commerce One Holdings
Click here to see how much of its profit Commerce One Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Commerce One Holdings's earnings per share have fallen at approximately 5.7% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
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, three years ago, Commerce One Holdings has lifted its dividend by approximately 16% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
The Bottom Line
From a dividend perspective, should investors buy or avoid Commerce One Holdings? While earnings per share are shrinking, it's encouraging to see that at least Commerce One Holdings's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: Commerce One Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that being said, if you're still considering Commerce One Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Commerce One Holdings is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious...
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.