Don’t Buy Saison Information Systems Co., Ltd. (TSE:9640) For Its Next Dividend Without Doing These Checks

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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 Saison Information Systems Co., Ltd. (TSE:9640) is about to go ex-dividend in just two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. This means that investors who purchase Saison Information Systems’ shares on or after the 28th of March will not receive the dividend, which will be paid on the 21st of June.

The company’s next dividend payment will be JP¥45.00 per share, and in the last 12 months, the company paid a total of JP¥90.00 per share. Based on the last year’s worth of payments, Saison Information Systems has a trailing yield of 4.5% on the current stock price of JP¥2000.00. If you buy this business for its dividend, you should have an idea of whether Saison Information Systems’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Saison Information Systems

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. Last year, Saison Information Systems paid out 319% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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 last year it paid out 74% of its free cash flow as dividends, within the usual range for most companies.

It’s good to see that while Saison Information Systems’s dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Saison Information Systems paid out over the last 12 months.

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TSE:9640 Historic Dividend March 25th 2024

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Saison Information Systems’s earnings have collapsed faster than Wile E Coyote’s schemes to trap the Road Runner; down a tremendous 31% a year over the past five years.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Saison Information Systems has increased its dividend at approximately 9.9% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Saison Information Systems is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.

The Bottom Line

Has Saison Information Systems got what it takes to maintain its dividend payments? It’s never fun to see a company’s earnings per share in retreat. Worse, Saison Information Systems’s paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it’s not a good combination. It’s not that we think Saison Information Systems is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.

Although, if you’re still interested in Saison Information Systems and want to know more, you’ll find it very useful to know what risks this stock faces. For example, we’ve found 3 warning signs for Saison Information Systems (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether Saison Information Systems is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.

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