Shibaura Machine Co.,Ltd. (TSE:6104) Looks Interesting, And It's About To Pay A Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shibaura Machine Co.,Ltd. (TSE:6104) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day 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 two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Shibaura MachineLtd's shares before the 27th of September to receive the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be JP¥70.00 per share, and in the last 12 months, the company paid a total of JP¥140 per share. Based on the last year's worth of payments, Shibaura MachineLtd has a trailing yield of 3.7% on the current stock price of JP¥3825.00. 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 Shibaura MachineLtd

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. Shibaura MachineLtd paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Dividends consumed 56% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Shibaura MachineLtd'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. That's why it's comforting to see Shibaura MachineLtd's earnings have been skyrocketing, up 35% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shibaura MachineLtd has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Shibaura MachineLtd for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Shibaura MachineLtd paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 2 warning signs for Shibaura MachineLtd (of which 1 makes us a bit uncomfortable!) you should know about.

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.