Why You Might Be Interested In Toami Corporation (TSE:5973) For Its Upcoming Dividend
Readers hoping to buy Toami Corporation (TSE:5973) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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 Toami's shares on or after the 29th of September will not receive the dividend, which will be paid on the 3rd of December.
The company's next dividend payment will be JP¥9.00 per share, on the back of last year when the company paid a total of JP¥18.00 to shareholders. Based on the last year's worth of payments, Toami stock has a trailing yield of around 2.9% on the current share price of JP¥617.00. 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 Toami can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Toami's payout ratio is modest, at just 28% of profit. A useful secondary check can be to evaluate whether Toami generated enough free cash flow to afford its dividend. The good news is it paid out just 8.1% of its free cash flow in the last year.
It's positive to see that Toami's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
View our latest analysis for Toami
Click here to see how much of its profit Toami 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. With that in mind, we're encouraged by the steady growth at Toami, with earnings per share up 4.8% on average over the last five years. Recent growth has not been impressive. 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. Toami has delivered an average of 1.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.
Final Takeaway
Is Toami an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Toami 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Toami is halfway there. Overall we think this is an attractive combination and worthy of further research.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 2 warning signs for Toami you should know about.
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.