It looks like Medical Ikkou Group Co.,Ltd. (TYO:3353) is about to go ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 25th of February will not receive this dividend, which will be paid on the 1st of May.
Medical Ikkou GroupLtd’s next dividend payment will be JP¥40.00 per share. Last year, in total, the company distributed JP¥80.00 to shareholders. Looking at the last 12 months of distributions, Medical Ikkou GroupLtd has a trailing yield of approximately 1.2% on its current stock price of ¥6900. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Medical Ikkou GroupLtd has a low and conservative payout ratio of just 17% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 53% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s positive to see that Medical Ikkou GroupLtd’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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Medical Ikkou GroupLtd earnings per share are up 2.6% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Medical Ikkou GroupLtd has lifted its dividend by approximately 10% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Medical Ikkou GroupLtd worth buying for its dividend? Earnings per share growth has been modest, and it’s interesting that Medical Ikkou GroupLtd is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. All things considered, we are not particularly enthused about Medical Ikkou GroupLtd from a dividend perspective.
While it’s tempting to invest in Medical Ikkou GroupLtd for the dividends alone, you should always be mindful of the risks involved. For example, we’ve found 3 warning signs for Medical Ikkou GroupLtd (2 shouldn’t be ignored!) that deserve your attention before investing in the shares.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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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