Four Days Left To Buy Hokuriku Electric Industry Co.,Ltd. (TSE:6989) Before The Ex-Dividend Date
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hokuriku Electric Industry Co.,Ltd. (TSE:6989) is about to go ex-dividend in just four 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. 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. Meaning, you will need to purchase Hokuriku Electric IndustryLtd's shares before the 29th of September to receive the dividend, which will be paid on the .
The company's next dividend payment will be JP¥47.50 per share. Last year, in total, the company distributed JP¥95.00 to shareholders. Looking at the last 12 months of distributions, Hokuriku Electric IndustryLtd has a trailing yield of approximately 4.0% on its current stock price of JP¥2371.00. 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 investigate whether Hokuriku Electric IndustryLtd can afford its dividend, and if the dividend could grow.
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. Hokuriku Electric IndustryLtd paid out a comfortable 39% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 125% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Hokuriku Electric IndustryLtd 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 Hokuriku Electric IndustryLtd'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. Were this to happen repeatedly, this would be a risk to Hokuriku Electric IndustryLtd's ability to maintain its dividend.
See our latest analysis for Hokuriku Electric IndustryLtd
Click here to see how much of its profit Hokuriku Electric IndustryLtd 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Hokuriku Electric IndustryLtd has grown its earnings rapidly, up 35% a year 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. Hokuriku Electric IndustryLtd has delivered 9.0% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy Hokuriku Electric IndustryLtd 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. In summary, it's hard to get excited about Hokuriku Electric IndustryLtd from a dividend perspective.
On that note, you'll want to research what risks Hokuriku Electric IndustryLtd is facing. Every company has risks, and we've spotted 1 warning sign for Hokuriku Electric IndustryLtd you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.