Income Investors Should Know That Mikikogyo Co., Ltd. (TSE:1718) Goes Ex-Dividend Soon

Mikikogyo Co., Ltd. (TSE:1718) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days 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. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Mikikogyo's shares on or after the 27th of June, you won't be eligible to receive the dividend, when it is paid on the 29th of August.

The company's next dividend payment will be JP¥100.00 per share, on the back of last year when the company paid a total of JP¥200 to shareholders. Based on the last year's worth of payments, Mikikogyo stock has a trailing yield of around 2.9% on the current share price of JP¥7000.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Mikikogyo is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.

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 Mikikogyo

Click here to see how much of its profit Mikikogyo paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Mikikogyo's earnings per share have been shrinking at 2.7% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Mikikogyo has lifted its dividend by approximately 9.6% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Mikikogyo? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Mikikogyo's dividend merits.

If you want to look further into Mikikogyo, it's worth knowing the risks this business faces. Be aware that Mikikogyo is showing 3 warning signs in our investment analysis, and 2 of those can't be ignored...

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.