Sega Sammy Holdings Inc. (TSE:6460) Passed Our Checks, And It's About To Pay A JP¥24.00 Dividend

Sega Sammy Holdings Inc. (TSE:6460) stock is about to trade ex-dividend in two days. 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Sega Sammy Holdings' shares before the 28th of March in order to receive the dividend, which the company will pay on the 3rd of June.

The company's next dividend payment will be JP¥24.00 per share. Last year, in total, the company distributed JP¥62.00 to shareholders. Based on the last year's worth of payments, Sega Sammy Holdings stock has a trailing yield of around 3.3% on the current share price of JP¥1900.50. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Sega Sammy Holdings

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 Sega Sammy Holdings's payout ratio is modest, at just 28% 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. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.

It's positive to see that Sega Sammy Holdings'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.

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. That's why it's comforting to see Sega Sammy Holdings's earnings have been skyrocketing, up 43% per annum for the past five years. Sega Sammy Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Sega Sammy Holdings has lifted its dividend by approximately 4.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Sega Sammy Holdings is keeping back more of its profits to grow the business.

The Bottom Line

Should investors buy Sega Sammy Holdings for the upcoming dividend? It's great that Sega Sammy Holdings 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. Sega Sammy Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Sega Sammy Holdings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Sega Sammy Holdings that you should be aware of before investing in their 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.