Kyoritsu Air Tech (TYO:5997) Could Be A Buy For Its Upcoming Dividend

Kyoritsu Air Tech Inc. (TYO:5997) is about to trade ex-dividend in the next three days. Ex-dividend means that investors that purchase the stock on or after the 29th of December will not receive this dividend, which will be paid on the 27th of March.

Kyoritsu Air Tech's next dividend payment will be JP¥10.00 per share, and in the last 12 months, the company paid a total of JP¥10.00 per share. Calculating the last year's worth of payments shows that Kyoritsu Air Tech has a trailing yield of 1.7% on the current share price of ¥603. If you buy this business for its dividend, you should have an idea of whether Kyoritsu Air Tech's dividend is reliable and sustainable. As a result, readers should always check whether Kyoritsu Air Tech has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Kyoritsu Air Tech

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kyoritsu Air Tech is paying out just 17% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Kyoritsu Air Tech generated enough free cash flow to afford its dividend. Fortunately, it paid out only 32% of its free cash flow in the past year.

It's positive to see that Kyoritsu Air Tech'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 Kyoritsu Air Tech 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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Kyoritsu Air Tech's earnings per share have been growing at 16% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Kyoritsu Air Tech has lifted its dividend by approximately 4.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Kyoritsu Air Tech is keeping back more of its profits to grow the business.

Final Takeaway

Has Kyoritsu Air Tech got what it takes to maintain its dividend payments? It's great that Kyoritsu Air Tech 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. Kyoritsu Air Tech looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Kyoritsu Air Tech looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Kyoritsu Air Tech has 2 warning signs we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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