Why You Might Be Interested In Mikikogyo Co., Ltd. (TSE:1718) For Its Upcoming Dividend

Mikikogyo Co., Ltd. (TSE:1718) stock is about to trade ex-dividend in three 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. The ex-dividend date is important as the process of settlement involves 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 December, you won't be eligible to receive the dividend, when it is paid on the 26th of March.

The company's upcoming dividend is JP¥100.00 a share, following on from the last 12 months, when the company distributed a total of JP¥200 per share to shareholders. Based on the last year's worth of payments, Mikikogyo stock has a trailing yield of around 4.2% on the current share price of JP¥4730.00. 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! As a result, readers should always check whether Mikikogyo has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Mikikogyo

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mikikogyo paid out just 12% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 8.7% of its free cash flow last year.

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.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 explains why we're not overly excited about Mikikogyo's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Mikikogyo is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mikikogyo has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Is Mikikogyo worth buying for its dividend? Earnings per share have been flat over this time, but we're intrigued to see that Mikikogyo is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Mikikogyo is halfway there. Mikikogyo looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, Mikikogyo has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.