Should You Buy Seiryo Electric Corporation (TSE:4341) For Its Upcoming Dividend?
It looks like Seiryo Electric Corporation (TSE:4341) is about to go ex-dividend in the next 3 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 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. Therefore, if you purchase Seiryo Electric's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the .
The company's next dividend payment will be JP¥15.00 per share, on the back of last year when the company paid a total of JP¥30.00 to shareholders. Calculating the last year's worth of payments shows that Seiryo Electric has a trailing yield of 3.2% on the current share price of JP¥927.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Seiryo Electric has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Seiryo Electric's payout ratio is modest, at just 37% of profit. A useful secondary check can be to evaluate whether Seiryo Electric 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 18% 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.
View our latest analysis for Seiryo Electric
Click here to see how much of its profit Seiryo Electric paid out over the last 12 months.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Seiryo Electric earnings per share are up 5.6% per annum 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. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Seiryo Electric's dividend payments per share have declined at 1.5% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Should investors buy Seiryo Electric for the upcoming dividend? Earnings per share growth has been growing somewhat, and Seiryo Electric is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 Seiryo Electric is halfway there. Seiryo Electric looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Seiryo Electric looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 2 warning signs for Seiryo Electric that we recommend you consider before investing in the business.
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.