Here's Why We're Wary Of Buying Ichikura's (TSE:6186) 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 Ichikura Co., Ltd. (TSE:6186) is about to trade ex-dividend in the next two 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Ichikura's shares before the 29th of September to receive the dividend, which will be paid on the .
The company's next dividend payment will be JP¥7.00 per share. Last year, in total, the company distributed JP¥15.00 to shareholders. Based on the last year's worth of payments, Ichikura has a trailing yield of 4.0% on the current stock price of JP¥373.00. If you buy this business for its dividend, you should have an idea of whether Ichikura's dividend is reliable and sustainable. So we need to investigate whether Ichikura 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. Ichikura's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 8.0% of its cash flow last year.
Check out our latest analysis for Ichikura
Click here to see how much of its profit Ichikura 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. Ichikura reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ichikura has seen its dividend decline 8.1% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Get our latest analysis on Ichikura's balance sheet health here.
Final Takeaway
Is Ichikura worth buying for its dividend? It's hard to get used to Ichikura paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Ichikura has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Ichikura. For example, we've found 3 warning signs for Ichikura (1 is potentially serious!) that deserve your attention before investing in the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.