Why It Might Not Make Sense To Buy Cominix Co.,Ltd. (TSE:3173) For Its Upcoming Dividend

Cominix Co.,Ltd. (TSE:3173) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase CominixLtd's shares before the 30th of March in order to receive the dividend, which the company will pay on the 23rd of June.

The company's next dividend payment will be JP¥20.00 per share, and in the last 12 months, the company paid a total of JP¥35.00 per share. Looking at the last 12 months of distributions, CominixLtd has a trailing yield of approximately 3.6% on its current stock price of JP¥974.00. 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 CominixLtd can afford its dividend, and if the dividend could grow.

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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. CominixLtd is paying out an acceptable 69% of its profit, a common payout level among most companies. 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. CominixLtd paid out more free cash flow than it generated - 139%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

CominixLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were CominixLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for CominixLtd

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. CominixLtd's earnings per share have fallen at approximately 13% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, CominixLtd has increased its dividend at approximately 11% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

From a dividend perspective, should investors buy or avoid CominixLtd? CominixLtd had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of CominixLtd.

With that in mind though, if the poor dividend characteristics of CominixLtd don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 5 warning signs for CominixLtd (2 can't be ignored!) that you ought to be aware of before buying the shares.

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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.