Should You Buy Hiday Hidaka Corp. (TSE:7611) For Its Upcoming Dividend?
It looks like Hiday Hidaka Corp. (TSE:7611) is about to go ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Hiday Hidaka's shares before the 28th of August in order to receive the dividend, which the company will pay on the 6th of November.
The company's next dividend payment will be JP¥26.00 per share, on the back of last year when the company paid a total of JP¥52.00 to shareholders. Based on the last year's worth of payments, Hiday Hidaka has a trailing yield of 1.7% on the current stock price of JP¥2991.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hiday Hidaka paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Hiday Hidaka generated enough free cash flow to afford its dividend. It distributed 47% 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.
See our latest analysis for Hiday Hidaka
Click here to see how much of its profit Hiday Hidaka paid out over the last 12 months.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Hiday Hidaka's earnings have been skyrocketing, up 40% per annum for the past five years. Hiday Hidaka is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Unfortunately Hiday Hidaka has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
From a dividend perspective, should investors buy or avoid Hiday Hidaka? We love that Hiday Hidaka is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Hiday Hidaka looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Keen to explore more data on Hiday Hidaka's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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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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.