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 Reiwa Accounting Holdings Co., Ltd. (TSE:296A) 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. Therefore, if you purchase Reiwa Accounting Holdings’ shares on or after the 29th of September, you won’t be eligible to receive the dividend, when it is paid on the 21st of December.
The company’s next dividend payment will be JP¥16.50 per share. Last year, in total, the company distributed JP¥33.00 to shareholders. Last year’s total dividend payments show that Reiwa Accounting Holdings has a trailing yield of 2.8% on the current share price of JP¥1188.00. If you buy this business for its dividend, you should have an idea of whether Reiwa Accounting 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.
We’ve found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.
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. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We’d be concerned if earnings began to decline. 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. The company paid out 109% 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.
Reiwa Accounting Holdings paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Reiwa Accounting Holdings’s ability to maintain its dividend.
Check out our latest analysis for Reiwa Accounting Holdings
Click here to see how much of its profit Reiwa Accounting Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s encouraging to see Reiwa Accounting Holdings has grown its earnings rapidly, up 36% 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.
Given that Reiwa Accounting Holdings has only been paying a dividend for a year, there’s not much of a past history to draw insight from.
The Bottom Line
Has Reiwa Accounting Holdings got what it takes to maintain its dividend payments? The best dividend stocks typically boast a long history of growing earnings per share (EPS) via a combination of earnings growth and buybacks. That’s why we’re glad to see Reiwa Accounting Holdings growing its EPS, buying back stock and paying out a reasonable percentage of its earnings as dividends. However, we note with some concern that it paid out 109% of its free cash flow last year, which is uncomfortably high and makes us wonder why the company chose to spend even more cash on buybacks. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Reiwa Accounting Holdings’s dividend merits.
If you want to look further into Reiwa Accounting Holdings, it’s worth knowing the risks this business faces. Every company has risks, and we’ve spotted 2 warning signs for Reiwa Accounting Holdings 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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Have feedback on this article? Concerned about the content?Get in touchwith us directly.Alternatively, email editorial-team (at) simplywallst.com.
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.
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About TSE:296A
Reiwa Accounting Holdings
Provides consulting services focused on accounting operations and business management in Japan.
Outstanding track record with flawless balance sheet.
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