Is It Smart To Buy Suntory Beverage & Food Limited (TSE:2587) Before It Goes Ex-Dividend?

It looks like Suntory Beverage & Food Limited (TSE:2587) is about to go ex-dividend in the next 3 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. 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. Therefore, if you purchase Suntory Beverage & Food's shares on or after the 29th of December, you won't be eligible to receive the dividend, when it is paid on the 27th of March.

The company's next dividend payment will be JP¥60.00 per share. Last year, in total, the company distributed JP¥120 to shareholders. Looking at the last 12 months of distributions, Suntory Beverage & Food has a trailing yield of approximately 2.5% on its current stock price of JP¥4747.00. If you buy this business for its dividend, you should have an idea of whether Suntory Beverage & Food's dividend is reliable and sustainable. So we need to investigate whether Suntory Beverage & Food 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. Fortunately Suntory Beverage & Food's payout ratio is modest, at just 45% of profit. 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. It distributed 49% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

View our latest analysis for Suntory Beverage & Food

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Suntory Beverage & Food earnings per share are up 4.4% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

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, 10 years ago, Suntory Beverage & Food has lifted its dividend by approximately 6.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Suntory Beverage & Food an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Suntory Beverage & Food is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Suntory Beverage & Food is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

Wondering what the future holds for Suntory Beverage & Food? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.