Hitachi Construction Machinery Co., Ltd. (TSE:6305) Looks Interesting, And It's About To Pay A Dividend
Hitachi Construction Machinery Co., Ltd. (TSE:6305) is about to trade ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Hitachi Construction Machinery's shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 1st of December.
The company's upcoming dividend is JP¥90.00 a share, following on from the last 12 months, when the company distributed a total of JP¥190 per share to shareholders. Based on the last year's worth of payments, Hitachi Construction Machinery has a trailing yield of 3.4% on the current stock price of JP¥5645.00. If you buy this business for its dividend, you should have an idea of whether Hitachi Construction Machinery's dividend is reliable and sustainable. As a result, readers should always check whether Hitachi Construction Machinery has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Hitachi Construction Machinery's payout ratio is modest, at just 41% of profit. 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. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Hitachi Construction Machinery'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.
View our latest analysis for Hitachi Construction Machinery
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. It's encouraging to see Hitachi Construction Machinery has grown its earnings rapidly, up 54% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Hitachi Construction Machinery has lifted its dividend by approximately 12% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
Is Hitachi Construction Machinery worth buying for its dividend? It's great that Hitachi Construction Machinery is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in Hitachi Construction Machinery for the dividends alone, you should always be mindful of the risks involved. For example - Hitachi Construction Machinery has 1 warning sign we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.