Three Days Left To Buy Hi-Lex Corporation (TSE:7279) Before The Ex-Dividend Date

Hi-Lex Corporation (TSE:7279) stock is about to trade ex-dividend in 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. 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. Thus, you can purchase Hi-Lex's shares before the 29th of October in order to receive the dividend, which the company will pay on the 26th of January.

The company's next dividend payment will be JP¥26.50 per share. Last year, in total, the company distributed JP¥53.00 to shareholders. Looking at the last 12 months of distributions, Hi-Lex has a trailing yield of approximately 2.4% on its current stock price of JP¥2185.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Hi-Lex has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hi-Lex is paying out just 4.0% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Hi-Lex generated enough free cash flow to afford its dividend. Hi-Lex paid out more free cash flow than it generated - 169%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Hi-Lex does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Hi-Lex's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Hi-Lex to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for Hi-Lex

Click here to see how much of its profit Hi-Lex 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. That's why it's comforting to see Hi-Lex's earnings have been skyrocketing, up 69% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Hi-Lex dividends are largely the same as they were 10 years ago.

Final Takeaway

From a dividend perspective, should investors buy or avoid Hi-Lex? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. All things considered, we are not particularly enthused about Hi-Lex from a dividend perspective.

While it's tempting to invest in Hi-Lex for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 3 warning signs for Hi-Lex (of which 1 can't be ignored!) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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