We Wouldn't Be Too Quick To Buy Kitanotatsujin Corporation (TSE:2930) Before It Goes Ex-Dividend
Readers hoping to buy Kitanotatsujin Corporation (TSE:2930) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Kitanotatsujin's shares on or after the 28th of August, you won't be eligible to receive the dividend, when it is paid on the 12th of November.
The company's upcoming dividend is JP¥1.70 a share, following on from the last 12 months, when the company distributed a total of JP¥3.50 per share to shareholders. Based on the last year's worth of payments, Kitanotatsujin stock has a trailing yield of around 2.8% on the current share price of JP¥127.00. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Kitanotatsujin paid out 108% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Kitanotatsujin's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Check out our latest analysis for Kitanotatsujin
Click here to see how much of its profit Kitanotatsujin paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Kitanotatsujin's earnings per share have dropped 20% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kitanotatsujin's dividend payments per share have declined at 2.2% per year on average over the past seven years, which is uninspiring. 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.
Final Takeaway
Is Kitanotatsujin an attractive dividend stock, or better left on the shelf? Earnings per share have been in decline, which is not encouraging. Worse, Kitanotatsujin's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. It's not that we think Kitanotatsujin is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in Kitanotatsujin and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 2 warning signs for Kitanotatsujin and you should be aware of these before buying any 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.