Be Sure To Check Out World Holdings Co., Ltd. (TSE:2429) Before It Goes Ex-Dividend

It looks like World Holdings Co., Ltd. (TSE:2429) is about to go ex-dividend in the next 4 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, World Holdings investors that purchase the stock on or after the 29th of December will not receive the dividend, which will be paid on the 31st of March.

The company's upcoming dividend is JP¥106.20 a share, following on from the last 12 months, when the company distributed a total of JP¥106 per share to shareholders. Looking at the last 12 months of distributions, World Holdings has a trailing yield of approximately 4.0% on its current stock price of JP¥2657.00. If you buy this business for its dividend, you should have an idea of whether World Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. World Holdings has a low and conservative payout ratio of just 20% of its income after tax. A useful secondary check can be to evaluate whether World Holdings generated enough free cash flow to afford its dividend. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 World Holdings

Click here to see how much of its profit World Holdings 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, World Holdings's earnings per share have been growing at 19% a year for the past five years. World Holdings 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, World Holdings has increased its dividend at approximately 15% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Has World Holdings got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, World Holdings paid out less than half its earnings and a bit over half its free cash flow. World Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in World Holdings for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with World Holdings (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

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.