Life society (TSE:8194) will trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date, which is the day on which a company determines which shareholders are entitled to a dividend. The ex-dividend date is important because trading takes at least two business days each time a share is bought or sold. So if you buy Life shares on or after August 29, you will no longer be eligible to receive the dividend when it is paid on November 1.

The company’s next dividend payment will be JP¥50.00 per share. Over the last 12 months, the company paid a total of JP¥100.00 per share. Based on last year’s payments, Life has a yield of 2.8% on the current share price of JP¥3575.00. We like it when companies pay a dividend, but it’s also important to make sure that by laying the golden egg we don’t kill our golden egg! So we need to investigate whether Life can afford its dividend, and if the dividend might grow.

Check out our latest analysis for Life

Dividends are usually paid out of company profits, so if a company pays out more than it earns, there is usually a higher risk of a dividend cut. Life only pays out 24% of its profit after tax, which is comfortably low and leaves plenty of room to maneuver in case of unfavorable events. However, when assessing a dividend, cash flows are even more important than profits, so we need to check whether the company generated enough cash to make the distribution. The good news is that it only paid out 14% of its free 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 the company’s payout ratio as well as analyst estimates of its future dividends.

Have earnings and dividends increased?

Companies with consistently growing earnings per share generally make the best dividend stocks because they usually have an easier time increasing the dividend per share. If the business goes into a crisis and the dividend is cut, the value of the company could fall sharply. Fortunately for readers, Life’s earnings per share have grown 19% annually over the past five years. The company has managed to grow its earnings quickly while reinvesting the majority of the profits in the business. Fast-growing companies that reinvest heavily are tempting from a dividend perspective, especially since they can often increase the payout ratio later.

Most investors judge a company’s dividend prospects by its historical dividend growth rate. Over the past 10 years, Life has increased its dividend by an average of about 15% per year. It’s exciting to see that both earnings and dividends per share have grown rapidly in recent years.

To sum it up

Should investors buy Life because of its upcoming dividend? We like that Life is growing earnings per share while paying out a low percentage of its earnings and cash flow. These traits suggest that the company is reinvesting in growing its business, while the conservative payout ratio also means a lower risk of a future dividend cut. It’s a promising combination that should make this company worthy of a closer look.

Have you ever wondered what the future holds for Life? See the forecasts from the four analysts we track, with this visualization of historical and future estimated earnings and cash flows

In general, we would not recommend simply buying the first dividend stock you see. Here is a curated list of interesting stocks with high dividend numbers.

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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.