Should Income Investors Look At Kohnan Shoji Co., Ltd. (TSE:7516) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kohnan Shoji Co., Ltd. (TSE:7516) is about to trade ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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, Kohnan Shoji investors that purchase the stock on or after the 28th of August will not receive the dividend, which will be paid on the 6th of November.

The company's next dividend payment will be JP¥70.00 per share, on the back of last year when the company paid a total of JP¥140 to shareholders. Last year's total dividend payments show that Kohnan Shoji has a trailing yield of 3.1% on the current share price of JP¥4490.00. If you buy this business for its dividend, you should have an idea of whether Kohnan Shoji's dividend is reliable and sustainable. So we need to investigate whether Kohnan Shoji can afford its dividend, and if the dividend could grow.

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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 Kohnan Shoji paying out a modest 25% of its 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. Fortunately, it paid out only 41% of its free cash flow in the past year.

It's positive to see that Kohnan Shoji's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Kohnan Shoji

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Kohnan Shoji's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Kohnan Shoji has lifted its dividend by approximately 14% a year on average.

To Sum It Up

Is Kohnan Shoji worth buying for its dividend? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. To summarise, Kohnan Shoji looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Kohnan Shoji is facing. Our analysis shows 2 warning signs for Kohnan Shoji and you should be aware of them before buying any 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.