Should You Buy Sanki Engineering Co., Ltd. (TSE:1961) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sanki Engineering Co., Ltd. (TSE:1961) is about to go ex-dividend in just three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Sanki Engineering's shares before the 29th of September in order to receive the dividend, which the company will pay on the 10th of December.

The company's upcoming dividend is JP¥82.50 a share, following on from the last 12 months, when the company distributed a total of JP¥165 per share to shareholders. Last year's total dividend payments show that Sanki Engineering has a trailing yield of 3.3% on the current share price of JP¥5030.00. 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 usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Sanki Engineering paying out a modest 49% of its earnings. A useful secondary check can be to evaluate whether Sanki Engineering generated enough free cash flow to afford its dividend. It paid out more than half (65%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Sanki Engineering'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 Sanki Engineering

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Sanki Engineering has grown its earnings rapidly, up 22% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sanki Engineering has delivered 27% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Sanki Engineering for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Sanki Engineering, and we would prioritise taking a closer look at it.

While it's tempting to invest in Sanki Engineering for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Sanki Engineering you should be aware of.

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.