Dividend Investors: Don't Be Too Quick To Buy Kawata Mfg. Co., Ltd. (TSE:6292) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kawata Mfg. Co., Ltd. (TSE:6292) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Kawata Mfg's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 7th of December.
The company's upcoming dividend is JP¥19.00 a share, following on from the last 12 months, when the company distributed a total of JP¥38.00 per share to shareholders. Calculating the last year's worth of payments shows that Kawata Mfg has a trailing yield of 4.5% on the current share price of JP¥847.00. If you buy this business for its dividend, you should have an idea of whether Kawata Mfg's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Kawata Mfg's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Kawata Mfg didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 18% of its free cash flow as dividends last year, which is conservatively low.
Check out our latest analysis for Kawata Mfg
Click here to see how much of its profit Kawata Mfg paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Kawata Mfg reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Kawata Mfg has increased its dividend at approximately 14% a year on average.
Remember, you can always get a snapshot of Kawata Mfg's financial health, by checking our visualisation of its financial health, here.
Final Takeaway
Has Kawata Mfg got what it takes to maintain its dividend payments? It's hard to get used to Kawata Mfg paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Kawata Mfg as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for Kawata Mfg (1 is significant!) that you ought to be aware of before buying the shares.
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.