Why You Might Be Interested In Daihatsu Diesel Mfg. Co., Ltd. (TSE:6023) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Daihatsu Diesel Mfg. Co., Ltd. (TSE:6023) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Thus, you can purchase Daihatsu Diesel Mfg's shares before the 28th of March in order to receive the dividend, which the company will pay on the 30th of June.

The company's next dividend payment will be JP¥50.00 per share, on the back of last year when the company paid a total of JP¥39.00 to shareholders. Last year's total dividend payments show that Daihatsu Diesel Mfg has a trailing yield of 2.1% on the current share price of JP¥1899.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Daihatsu Diesel Mfg is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Fortunately, it paid out only 30% of its free cash flow in the past year.

It's positive to see that Daihatsu Diesel Mfg'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.

Check out our latest analysis for Daihatsu Diesel Mfg

Click here to see how much of its profit Daihatsu Diesel Mfg 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Daihatsu Diesel Mfg's earnings have been skyrocketing, up 30% per annum for the past five years. Daihatsu Diesel Mfg is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Daihatsu Diesel Mfg has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Has Daihatsu Diesel Mfg got what it takes to maintain its dividend payments? We love that Daihatsu Diesel Mfg is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Daihatsu Diesel Mfg looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Daihatsu Diesel Mfg is facing. Be aware that Daihatsu Diesel Mfg is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.