Be Sure To Check Out Rheon Automatic Machinery Co., Ltd. (TSE:6272) Before It Goes Ex-Dividend

Rheon Automatic Machinery Co., Ltd. (TSE:6272) stock is about to trade ex-dividend in four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Rheon Automatic Machinery's shares before the 27th of September to receive the dividend, which will be paid on the 11th of December.

The company's next dividend payment will be JP¥21.00 per share. Last year, in total, the company distributed JP¥42.00 to shareholders. Looking at the last 12 months of distributions, Rheon Automatic Machinery has a trailing yield of approximately 3.0% on its current stock price of JP¥1394.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Rheon Automatic Machinery

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. That's why it's good to see Rheon Automatic Machinery paying out a modest 29% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

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 Rheon Automatic Machinery 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. 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 Rheon Automatic Machinery earnings per share are up 9.1% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Rheon Automatic Machinery has delivered 24% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has Rheon Automatic Machinery got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Rheon Automatic Machinery is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. 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 Rheon Automatic Machinery is halfway there. Rheon Automatic Machinery looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Rheon Automatic Machinery for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Rheon Automatic Machinery and you should be aware of it 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.