Readers hoping to buy Fast Fitness Japan Incorporated (TSE:7092) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Fast Fitness Japan’s shares on or after the 27th of September will not receive the dividend, which will be paid on the 4th of December.

The company’s next dividend payment will be JP¥15.00 per share, and in the last 12 months, the company paid a total of JP¥33.00 per share. Based on the last year’s worth of payments, Fast Fitness Japan has a trailing yield of 2.5% on the current stock price of JP¥1320.00. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Fast Fitness Japan

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fast Fitness Japan paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether Fast Fitness Japan generated enough free cash flow to afford its dividend. What’s good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

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

Click here to see how much of its profit Fast Fitness Japan paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we’re encouraged by the steady growth at Fast Fitness Japan, with earnings per share up 7.7% on average over the last five years. Management have been reinvested more than half of the company’s earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Fast Fitness Japan has delivered an average of 37% per year annual increase in its dividend, based on the past three years of dividend payments. 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 Fast Fitness Japan? Earnings per share have been growing moderately, and Fast Fitness Japan is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Fast Fitness Japan is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Fast Fitness Japan has an appealing dividend, it’s worth knowing the risks involved with this stock. Every company has risks, and we’ve spotted 2 warning signs for Fast Fitness Japan you should know about.

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.

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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.