Be Sure To Check Out Takagi Seiko Corporation (TSE:4242) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Takagi Seiko Corporation (TSE:4242) 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. Therefore, if you purchase Takagi Seiko's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 11th of December.

The company's upcoming dividend is JP¥20.00 a share, following on from the last 12 months, when the company distributed a total of JP¥40.00 per share to shareholders. Looking at the last 12 months of distributions, Takagi Seiko has a trailing yield of approximately 2.4% on its current stock price of JP¥1676.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Takagi Seiko

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Takagi Seiko paid out just 8.5% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 3.4% of its free cash flow in the last year.

It's positive to see that Takagi Seiko'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.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Takagi Seiko, with earnings per share up 2.6% on average over the last five years. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Takagi Seiko has lifted its dividend by approximately 15% 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.

Final Takeaway

Has Takagi Seiko got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Takagi Seiko 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 Takagi Seiko is halfway there. There's a lot to like about Takagi Seiko, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Takagi Seiko is facing. For example, we've found 2 warning signs for Takagi Seiko 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.