Be Sure To Check Out Sumitomo Densetsu Co.,Ltd. (TSE:1949) Before It Goes Ex-Dividend

Sumitomo Densetsu Co.,Ltd. (TSE:1949) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. In other words, investors can purchase Sumitomo DensetsuLtd's shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 3rd of December.

The company's next dividend payment will be JP¥78.00 per share. Last year, in total, the company distributed JP¥156 to shareholders. Last year's total dividend payments show that Sumitomo DensetsuLtd has a trailing yield of 2.4% on the current share price of JP¥6420.00. 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.

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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. That's why it's good to see Sumitomo DensetsuLtd paying out a modest 39% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Sumitomo DensetsuLtd'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 Sumitomo DensetsuLtd

Click here to see how much of its profit Sumitomo DensetsuLtd 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Sumitomo DensetsuLtd earnings per share are up 6.3% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

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, Sumitomo DensetsuLtd has increased its dividend at approximately 19% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Should investors buy Sumitomo DensetsuLtd for the upcoming dividend? Earnings per share growth has been growing somewhat, and Sumitomo DensetsuLtd 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Sumitomo DensetsuLtd is halfway there. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about Sumitomo DensetsuLtd? Here's a visualisation of its historical rate of revenue and earnings growth.

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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.