Is It Worth Considering DOUTOR NICHIRES Holdings Co., Ltd. (TSE:3087) For Its Upcoming Dividend?
Readers hoping to buy DOUTOR NICHIRES Holdings Co., Ltd. (TSE:3087) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. This means that investors who purchase DOUTOR NICHIRES Holdings' shares on or after the 28th of August will not receive the dividend, which will be paid on the 18th of November.
The company's next dividend payment will be JP¥30.00 per share. Last year, in total, the company distributed JP¥60.00 to shareholders. Calculating the last year's worth of payments shows that DOUTOR NICHIRES Holdings has a trailing yield of 1.8% on the current share price of JP¥3290.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately DOUTOR NICHIRES Holdings's payout ratio is modest, at just 30% 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. Over the past year it paid out 127% of its free cash flow as dividends, which is uncomfortably 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.
DOUTOR NICHIRES Holdings 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 DOUTOR NICHIRES Holdings'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 DOUTOR NICHIRES Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for DOUTOR NICHIRES Holdings
Click here to see how much of its profit DOUTOR NICHIRES 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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see DOUTOR NICHIRES Holdings's earnings have been skyrocketing, up 48% 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. DOUTOR NICHIRES Holdings has delivered 7.9% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Should investors buy DOUTOR NICHIRES Holdings for the upcoming dividend? 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. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for DOUTOR NICHIRES Holdings and you should be aware of this before buying any shares.
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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.