Income Investors Should Know That Tokyo Metro Co., Ltd. (TSE:9023) Goes Ex-Dividend Soon
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 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 Tokyo Metro's 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 January.
The company's next dividend payment will be JP¥21.00 per share. Last year, in total, the company distributed JP¥42.00 to shareholders. Based on the last year's worth of payments, Tokyo Metro has a trailing yield of 2.4% on the current stock price of JP¥1753.00. 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.
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. Fortunately Tokyo Metro's payout ratio is modest, at just 40% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out an unsustainably high 246% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Tokyo Metro intends to continue funding this dividend, or if it could be forced to cut the payment.
While Tokyo Metro's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Tokyo Metro's ability to maintain its dividend.
See our latest analysis for Tokyo Metro
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Tokyo Metro, with earnings per share up 2.5% 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.
Given that Tokyo Metro has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Final Takeaway
Has Tokyo Metro got what it takes to maintain its dividend payments? Tokyo Metro delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 246% of its cash flow over the last year, which is a mediocre outcome. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
If you're not too concerned about Tokyo Metro's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To that end, you should learn about the 2 warning signs we've spotted with Tokyo Metro (including 1 which is a bit concerning).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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.