Should Income Investors Look At Hakuto Co., Ltd. (TSE:7433) Before Its Ex-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 Hakuto Co., Ltd. (TSE:7433) is about to go ex-dividend in just 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a 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. This means that investors who purchase Hakuto's shares on or after the 29th of September will not receive the dividend, which will be paid on the 7th of December.

The company's next dividend payment will be JP¥120.00 per share, on the back of last year when the company paid a total of JP¥220 to shareholders. Looking at the last 12 months of distributions, Hakuto has a trailing yield of approximately 4.5% on its current stock price of JP¥5610.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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. Hakuto is paying out an acceptable 65% of its profit, a common payout level among most companies. 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 49% of its free cash flow in the past year.

It's positive to see that Hakuto'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.

Check out our latest analysis for Hakuto

Click here to see how much of its profit Hakuto 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Hakuto's earnings per share have been growing at 16% a year for the past five years. Hakuto is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. 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. In the last 10 years, Hakuto has lifted its dividend by approximately 20% 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.

To Sum It Up

Should investors buy Hakuto for the upcoming dividend? We like Hakuto's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Hakuto for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 4 warning signs for Hakuto that we strongly recommend you have a look at before investing in the company.

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.