Tanaka Seimitsu Kogyo Co., Ltd. (TSE:7218) Passed Our Checks, And It's About To Pay A JP¥13.00 Dividend

It looks like Tanaka Seimitsu Kogyo Co., Ltd. (TSE:7218) is about to go ex-dividend in the next 3 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 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 Tanaka Seimitsu Kogyo's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 2nd of December.

The company's next dividend payment will be JP¥13.00 per share, on the back of last year when the company paid a total of JP¥26.00 to shareholders. Based on the last year's worth of payments, Tanaka Seimitsu Kogyo has a trailing yield of 2.6% on the current stock price of JP¥985.00. 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! So we need to investigate whether Tanaka Seimitsu Kogyo can afford its dividend, and if the dividend could grow.

View our latest analysis for Tanaka Seimitsu Kogyo

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tanaka Seimitsu Kogyo paid out just 8.2% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Tanaka Seimitsu Kogyo generated enough free cash flow to afford its dividend. The good news is it paid out just 2.2% of its free cash flow in the last year.

It's positive to see that Tanaka Seimitsu Kogyo'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 how much of its profit Tanaka Seimitsu Kogyo paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Tanaka Seimitsu Kogyo has grown its earnings rapidly, up 40% a year for the past five years. Tanaka Seimitsu Kogyo looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tanaka Seimitsu Kogyo has delivered 5.0% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Has Tanaka Seimitsu Kogyo got what it takes to maintain its dividend payments? Tanaka Seimitsu Kogyo has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

So while Tanaka Seimitsu Kogyo looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 3 warning signs with Tanaka Seimitsu Kogyo and understanding them should be part of your investment process.

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.