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Do These 3 Checks Before Buying Hagihara Industries Inc. (TSE:7856) For Its Upcoming Dividend
Hagihara Industries Inc. (TSE:7856) stock is about to trade ex-dividend in three 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Hagihara Industries' shares before the 29th of October in order to receive the dividend, which the company will pay on the 28th of January.
The company's upcoming dividend is JP¥40.00 a share, following on from the last 12 months, when the company distributed a total of JP¥80.00 per share to shareholders. Looking at the last 12 months of distributions, Hagihara Industries has a trailing yield of approximately 4.0% on its current stock price of JP¥2015.00. 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 Hagihara Industries can afford its dividend, and if the dividend could grow.
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. Hagihara Industries paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 69% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Hagihara Industries'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 Hagihara Industries
Click here to see how much of its profit Hagihara Industries paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Hagihara Industries's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Hagihara Industries has lifted its dividend by approximately 12% a year on average.
The Bottom Line
Is Hagihara Industries worth buying for its dividend? While earnings per share are flat, at least Hagihara Industries has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not that we think Hagihara Industries is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Want to learn more about Hagihara Industries? Here's a visualisation of its historical rate of revenue and earnings growth.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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