Interested In Imasen Electric Industrial's (TSE:7266) Upcoming JP¥7.50 Dividend? You Have Three Days Left

Imasen Electric Industrial Co., Ltd. (TSE:7266) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Imasen Electric Industrial's shares before the 27th of September in order to receive the dividend, which the company will pay on the 4th of December.

The company's upcoming dividend is JP¥7.50 a share, following on from the last 12 months, when the company distributed a total of JP¥15.00 per share to shareholders. Based on the last year's worth of payments, Imasen Electric Industrial has a trailing yield of 2.5% on the current stock price of JP¥597.00. If you buy this business for its dividend, you should have an idea of whether Imasen Electric Industrial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Imasen Electric Industrial

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. Imasen Electric Industrial paid out just 8.8% 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 Imasen Electric Industrial generated enough free cash flow to afford its dividend. Imasen Electric Industrial paid out more free cash flow than it generated - 115%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Imasen Electric Industrial does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Imasen Electric Industrial paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Imasen Electric Industrial's ability to maintain its dividend.

Click here to see how much of its profit Imasen Electric Industrial 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Imasen Electric Industrial earnings per share are up 2.8% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Imasen Electric Industrial's dividend payments per share have declined at 5.4% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Is Imasen Electric Industrial an attractive dividend stock, or better left on the shelf? Imasen Electric Industrial delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 115% of its cash flow over the last year, which is a mediocre outcome. To summarise, Imasen Electric Industrial looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in Imasen Electric Industrial as a potential investment, you should definitely consider some of the risks involved with Imasen Electric Industrial. We've identified 4 warning signs with Imasen Electric Industrial (at least 1 which is concerning), 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.