Why You Might Be Interested In The Yokohama Rubber Company, Limited (TSE:5101) 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 The Yokohama Rubber Company, Limited (TSE:5101) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Yokohama Rubber Company investors that purchase the stock on or after the 29th of December will not receive the dividend, which will be paid on the 31st of March.
The company's upcoming dividend is JP¥64.00 a share, following on from the last 12 months, when the company distributed a total of JP¥112 per share to shareholders. Based on the last year's worth of payments, Yokohama Rubber Company has a trailing yield of 1.8% on the current stock price of JP¥6171.00. 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 Yokohama Rubber Company can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Yokohama Rubber Company is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
See our latest analysis for Yokohama Rubber Company
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Yokohama Rubber Company's earnings per share have risen 14% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Yokohama Rubber Company has delivered 8.0% dividend growth per year on average over the past 10 years. 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 Yokohama Rubber Company worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Yokohama Rubber Company paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Yokohama Rubber Company, and we would prioritise taking a closer look at it.
While it's tempting to invest in Yokohama Rubber Company for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Yokohama Rubber Company you should know about.
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.