There's A Lot To Like About Sanyu ConstructionLtd's (TSE:1841) Upcoming JP¥10.00 Dividend

Sanyu Construction Co.,Ltd. (TSE:1841) stock is about to trade ex-dividend in 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Sanyu ConstructionLtd investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 15th of December.

The company's upcoming dividend is JP¥10.00 a share, following on from the last 12 months, when the company distributed a total of JP¥25.00 per share to shareholders. Calculating the last year's worth of payments shows that Sanyu ConstructionLtd has a trailing yield of 2.1% on the current share price of JP¥1165.00. If you buy this business for its dividend, you should have an idea of whether Sanyu ConstructionLtd's dividend is reliable and sustainable. As a result, readers should always check whether Sanyu ConstructionLtd has been able to grow its dividends, or if the dividend might be cut.

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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. Sanyu ConstructionLtd is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 9.9% of its free cash flow last year.

It's positive to see that Sanyu ConstructionLtd'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.

View our latest analysis for Sanyu ConstructionLtd

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 Sanyu ConstructionLtd's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sanyu ConstructionLtd's dividend payments are effectively flat on where they were seven years ago.

To Sum It Up

From a dividend perspective, should investors buy or avoid Sanyu ConstructionLtd? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but Sanyu ConstructionLtd is halfway there. Overall we think this is an attractive combination and worthy of further research.

So while Sanyu ConstructionLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Sanyu ConstructionLtd that we recommend you consider before investing in the business.

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.