Dividend Investors: Don't Be Too Quick To Buy EXEDY Corporation (TSE:7278) For Its Upcoming Dividend

It looks like EXEDY Corporation (TSE:7278) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, EXEDY investors that purchase the stock on or after the 27th of September will not receive the dividend, which will be paid on the 27th of November.

The company's next dividend payment will be JP¥60.00 per share, and in the last 12 months, the company paid a total of JP¥120 per share. Based on the last year's worth of payments, EXEDY has a trailing yield of 3.7% on the current stock price of JP¥3205.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for EXEDY

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. EXEDY reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 21% of its free cash flow as dividends last year, which is conservatively low.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. EXEDY was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

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, EXEDY has increased its dividend at approximately 9.1% a year on average.

Remember, you can always get a snapshot of EXEDY's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Is EXEDY worth buying for its dividend? It's hard to get used to EXEDY paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think EXEDY is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering EXEDY as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for EXEDY you should be aware of.

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.