Sanyo Trading Co., Ltd. (TSE:3176) Passed Our Checks, And It's About To Pay A JP¥23.00 Dividend

Sanyo Trading Co., Ltd. (TSE:3176) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Sanyo Trading's shares before the 27th of September in order to receive the dividend, which the company will pay on the 2nd of December.

The company's next dividend payment will be JP¥23.00 per share. Last year, in total, the company distributed JP¥46.00 to shareholders. Based on the last year's worth of payments, Sanyo Trading stock has a trailing yield of around 3.1% on the current share price of JP¥1505.00. 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! So we need to investigate whether Sanyo Trading can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Sanyo Trading

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. Sanyo Trading 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. 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. The good news is it paid out just 15% of its free cash flow in the 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 Sanyo Trading 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Sanyo Trading earnings per share are up 9.7% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sanyo Trading has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Sanyo Trading? Earnings per share growth has been growing somewhat, and Sanyo Trading 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. It might be nice to see earnings growing faster, but Sanyo Trading is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about Sanyo Trading? 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.