It Might Not Be A Great Idea To Buy FALCO HOLDINGS Co., Ltd. (TSE:4671) For Its Next Dividend
FALCO HOLDINGS Co., Ltd. (TSE:4671) is about to trade ex-dividend in the next 2 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. 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 FALCO HOLDINGS' shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 1st of December.
The company's next dividend payment will be JP¥64.00 per share, and in the last 12 months, the company paid a total of JP¥128 per share. Based on the last year's worth of payments, FALCO HOLDINGS has a trailing yield of 4.5% on the current stock price of JP¥2823.00. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. FALCO HOLDINGS is paying out an acceptable 60% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether FALCO HOLDINGS generated enough free cash flow to afford its dividend. It paid out 101% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
FALCO HOLDINGS does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
FALCO HOLDINGS paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were FALCO HOLDINGS to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
See our latest analysis for FALCO HOLDINGS
Click here to see how much of its profit FALCO HOLDINGS paid out over the last 12 months.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at FALCO HOLDINGS, with earnings per share up 3.2% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, FALCO HOLDINGS has lifted its dividend by approximately 13% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is FALCO HOLDINGS worth buying for its dividend? FALCO HOLDINGS is paying out a reasonable percentage of its income and an uncomfortably high 101% of its cash flow as dividends. At least earnings per share have been growing steadily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of FALCO HOLDINGS.
With that in mind though, if the poor dividend characteristics of FALCO HOLDINGS don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 2 warning signs we've spotted with FALCO HOLDINGS (including 1 which is potentially serious).
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.