Auto Server Co., Ltd. (TSE:5589) Will Pay A JP¥66.00 Dividend In Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Auto Server Co., Ltd. (TSE:5589) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Auto Server investors that purchase the stock on or after the 29th of December will not receive the dividend, which will be paid on the 27th of March.

The company's upcoming dividend is JP¥66.00 a share, following on from the last 12 months, when the company distributed a total of JP¥66.00 per share to shareholders. Based on the last year's worth of payments, Auto Server has a trailing yield of 2.6% on the current stock price of JP¥2508.00. 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! We need to see whether the dividend is covered by earnings and if it's growing.

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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. That's why it's good to see Auto Server paying out a modest 32% of its earnings. 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. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 Auto Server

Click here to see how much of its profit Auto Server paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. To our modest chagrin, Auto Server earnings per share have been effectively flat over the past year. The best dividend stocks all grow their earnings per share over the long run, but it is hard to draw strong conclusions from any one year period. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

Unfortunately Auto Server has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Has Auto Server got what it takes to maintain its dividend payments? Earnings per share have been flat over the one-year timeframe we consider, and Auto Server paid out less than half its earnings and more than half its free cashflow over the last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Want to learn more about Auto Server? Here's a visualisation of its historical rate of revenue and earnings growth.

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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.