Is It Worth Considering Ryobi Limited (TSE:5851) For Its Upcoming Dividend?
Ryobi Limited (TSE:5851) is set to go ex-dividend in four days, with a dividend payment of JP¥50.00 per share on September 2. The company has a trailing yield of approximately 4.8% based on its current stock price of JP¥2079.00. While Ryobi's earnings per share have grown by 5.9% annually over the last five years, it paid out 181% of its free cash flow last year, raising concerns about the sustainability of its dividend. Despite a history of 9.6% average annual dividend growth over the past decade, investors should be cautious due to potential risks associated with cash flow coverage.
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 Ryobi Limited (TSE:5851) is about to go ex-dividend in just four days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. Accordingly, Ryobi investors that purchase the stock on or after the 27th of June will not receive the dividend, which will be paid on the 2nd of September.
The company's next dividend payment will be JP¥50.00 per share, and in the last 12 months, the company paid a total of JP¥100.00 per share. Looking at the last 12 months of distributions, Ryobi has a trailing yield of approximately 4.8% on its current stock price of JP¥2079.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Ryobi can afford its dividend, and if the dividend could grow.
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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Ryobi paying out a modest 42% of its earnings. A useful secondary check can be to evaluate whether Ryobi generated enough free cash flow to afford its dividend. Ryobi paid out more free cash flow than it generated - 181%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Ryobi's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Ryobi to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for Ryobi
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. This is why it's a relief to see Ryobi earnings per share are up 5.9% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ryobi has delivered 9.6% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Ryobi? Ryobi delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 181% of its cash flow over the last year, which is a mediocre outcome. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Ryobi's dividend merits.
If you want to look further into Ryobi, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 2 warning signs with Ryobi and understanding them should be part of your investment process.
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.
