Just Three Days Till No.1 Co.,Ltd (TSE:3562) Will Be Trading Ex-Dividend

No.1 Co.,Ltd (TSE:3562) is about to trade ex-dividend in the next three 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. 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 No.1Ltd's shares on or after the 28th of August, you won't be eligible to receive the dividend, when it is paid on the 16th of November.

The company's next dividend payment will be JP¥39.50 per share. Last year, in total, the company distributed JP¥79.00 to shareholders. Last year's total dividend payments show that No.1Ltd has a trailing yield of 5.0% on the current share price of JP¥1591.00. 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 No.1Ltd can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. No.1Ltd is paying out an acceptable 74% 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. Dividends consumed 55% 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 No.1Ltd

Click here to see how much of its profit No.1Ltd paid out over the last 12 months.

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. Fortunately for readers, No.1Ltd's earnings per share have been growing at 10% a year for the past five years. No.1Ltd has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

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, seven years ago, No.1Ltd has lifted its dividend by approximately 34% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy No.1Ltd for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see No.1Ltd's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 74% and 55% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of No.1Ltd's dividend merits.

While it's tempting to invest in No.1Ltd for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 3 warning signs for No.1Ltd (1 is a bit unpleasant) you should be aware of.

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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.