Some investors rely on dividends to grow their wealth. If you are one of these dividend detectives, you might be interested to know that Tenmaya Store Co., Ltd. (TSE:9846) will trade ex-dividend in just four days. Typically, the ex-dividend date occurs one business day before the record date, which is the day on which a company determines which shareholders are entitled to a dividend. It is important to know the ex-dividend date because any trade in the stock must have occurred on or before the record date. This means you would have to purchase Tenmaya Store shares before August 29th to receive the dividend, which will be paid on November 7th.

The company’s upcoming dividend is JP¥7.00 per share. Over the last 12 months, the company has paid out a total of JP¥14.00 per share to shareholders. Last year’s total dividend payments show that Tenmaya Store has a yield of 1.4% on the current share price of JP¥1034.00. We like it when companies pay a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden goose! Therefore, readers should always check if Tenmaya Store has been able to grow its dividends, or if the dividend is at risk of being cut.

Check out our latest analysis for Tenmaya Store

If a company pays out more in dividends than it earns, the dividend can become unsustainable – far from an ideal situation. Tenmaya Store only pays out 8.6% of its profit after tax, which is comfortably low and leaves plenty of room to maneuver in case of unfortunate events. But cash flows are even more important than profits when assessing a dividend, so we need to check whether the company generated enough cash to pay the distribution. On the positive side, dividends were well covered by free cash flow, with the company paying out 3.4% of its cash flow last year.

It’s encouraging to see that the dividend is covered by both profits and cash flow. This generally suggests that the dividend is sustainable as long as earnings don’t fall precipitously.

Click here to see how much profit Tenmaya Store has paid out in the last 12 months.

Have earnings and dividends increased?

Companies whose earnings aren’t growing can still be valuable, but it’s even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s not encouraging to see that Tenmaya Store’s earnings have been virtually stagnant over the past five years. We’d prefer that to a decline in earnings any day, but over the long term, all dividend stocks grow their earnings per share. Growth has been weak. However, with more than 75% of earnings remaining in the business, there’s plenty of room to reinvest in growth or increase the payout ratio – either of which could increase the dividend.

Many investors judge a company’s dividend performance by looking at how dividend payments have changed over time. Since we began collecting data 10 years ago, Tenmaya Store has increased its dividend by an average of about 11% annually.

Last Takeaway

Does Tenmaya Store have what it takes to maintain its dividend payments? Earnings per share have remained flat over that time, but we’re intrigued to see that Tenmaya Store is paying out less than half of its earnings and cash flow as dividends. That’s interesting for a couple of reasons, because it suggests that management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We’d prefer to see earnings grow faster, but the best dividend stocks typically combine strong earnings per share growth with a low payout ratio over the long term, and Tenmaya Store is halfway there. Tenmaya Store has a lot of good going for it, and we’d make it a priority to take a closer look.

With this in mind, while Tenmaya Store has an attractive dividend, it is worth knowing the risks associated with this stock. For example, Tenmaya Store has 3 warning signs (and 1 that is possibly serious) that we think you should know about.

If you are looking for strong dividend payers, we recommend Check out our selection of the highest dividend stocks.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.