Do These 3 Checks Before Buying Rock Field Co.,Ltd. (TSE:2910) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Rock Field Co.,Ltd. (TSE:2910) is about to trade ex-dividend in the next three 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Rock FieldLtd investors that purchase the stock on or after the 29th of October will not receive the dividend, which will be paid on the 18th of January.
The company's next dividend payment will be JP¥9.00 per share. Last year, in total, the company distributed JP¥24.00 to shareholders. Based on the last year's worth of payments, Rock FieldLtd stock has a trailing yield of around 1.8% on the current share price of JP¥1368.00. If you buy this business for its dividend, you should have an idea of whether Rock FieldLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. An unusually high payout ratio of 303% of its profit suggests something is happening other than the usual distribution of profits to shareholders. A useful secondary check can be to evaluate whether Rock FieldLtd generated enough free cash flow to afford its dividend. The company paid out 94% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
Cash is slightly more important than profit from a dividend perspective, but given Rock FieldLtd's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
View our latest analysis for Rock FieldLtd
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Rock FieldLtd's earnings per share have fallen at approximately 29% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Rock FieldLtd dividends are largely the same as they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
To Sum It Up
Should investors buy Rock FieldLtd for the upcoming dividend? Not only are earnings per share declining, but Rock FieldLtd is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Rock FieldLtd.
So if you're still interested in Rock FieldLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 2 warning signs for Rock FieldLtd you should be aware of.
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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