MK Seiko Co., Ltd. (TSE:5906) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy MK Seiko Co., Ltd. (TSE:5906) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, MK Seiko investors that purchase the stock on or after the 18th of March will not receive the dividend, which will be paid on the 19th of June.

The company's upcoming dividend is JP¥8.00 a share, following on from the last 12 months, when the company distributed a total of JP¥8.00 per share to shareholders. Calculating the last year's worth of payments shows that MK Seiko has a trailing yield of 1.5% on the current share price of JP¥522.00. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for MK Seiko

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. MK Seiko has a low and conservative payout ratio of just 15% of its income after tax. A useful secondary check can be to evaluate whether MK Seiko generated enough free cash flow to afford its dividend. Luckily it paid out just 5.4% of its free cash flow 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 MK Seiko paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about MK Seiko'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. MK Seiko is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. MK Seiko's dividend payments are effectively flat on where they were 10 years ago.

The Bottom Line

Is MK Seiko an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we're intrigued to see that MK 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. Generally we like to see both low payout ratios and strong earnings per share growth, but MK Seiko is halfway there. There's a lot to like about MK Seiko, and we would prioritise taking a closer look at it.

So while MK Seiko looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 3 warning signs for MK Seiko and you should be aware of these before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.