G-Tekt Corporation (TSE:5970) Passed Our Checks, And It's About To Pay A JP¥37.00 Dividend

G-Tekt Corporation (TSE:5970) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. Accordingly, G-Tekt investors that purchase the stock on or after the 28th of March will not receive the dividend, which will be paid on the 24th of June.

The company's next dividend payment will be JP¥37.00 per share, on the back of last year when the company paid a total of JP¥74.00 to shareholders. Looking at the last 12 months of distributions, G-Tekt has a trailing yield of approximately 4.1% on its current stock price of JP¥1801.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether G-Tekt can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. G-Tekt paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 49% of its free cash flow in the past 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.

Check out our latest analysis for G-Tekt

Click here to see how much of its profit G-Tekt 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at G-Tekt, with earnings per share up 3.7% on average over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, G-Tekt has increased its dividend at approximately 13% a year on average. 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.

Final Takeaway

Should investors buy G-Tekt for the upcoming dividend? Earnings per share have been growing moderately, and G-Tekt 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 G-Tekt is halfway there. Overall we think this is an attractive combination and worthy of further research.

Curious about whether G-Tekt has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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.