Chikaranomoto Holdings Co., Ltd. (TSE:3561) Looks Interesting, And It's About To Pay A Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Chikaranomoto Holdings Co., Ltd. (TSE:3561) is about to go ex-dividend in just 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. Thus, you can purchase Chikaranomoto Holdings' shares before the 29th of September in order to receive the dividend, which the company will pay on the 8th of December.

The company's upcoming dividend is JP¥12.00 a share, following on from the last 12 months, when the company distributed a total of JP¥24.00 per share to shareholders. Last year's total dividend payments show that Chikaranomoto Holdings has a trailing yield of 1.6% on the current share price of JP¥1503.00. If you buy this business for its dividend, you should have an idea of whether Chikaranomoto Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Chikaranomoto Holdings has been able to grow its dividends, or if the dividend might be cut.

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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. Fortunately Chikaranomoto Holdings's payout ratio is modest, at just 44% of profit. 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. Thankfully its dividend payments took up just 43% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Chikaranomoto Holdings'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.

See our latest analysis for Chikaranomoto Holdings

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Chikaranomoto Holdings has grown its earnings rapidly, up 25% a year for the past five years. Chikaranomoto Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

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, Chikaranomoto Holdings has lifted its dividend by approximately 22% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Has Chikaranomoto Holdings got what it takes to maintain its dividend payments? It's great that Chikaranomoto Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Chikaranomoto Holdings, and we would prioritise taking a closer look at it.

While it's tempting to invest in Chikaranomoto Holdings for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Chikaranomoto Holdings that we recommend you consider before investing in the business.

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.