Why You Might Be Interested In Komatsu Ltd. (TSE:6301) For Its Upcoming Dividend

Readers hoping to buy Komatsu Ltd. (TSE:6301) 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. Meaning, you will need to purchase Komatsu's shares before the 29th of September to receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥95.00 per share. Last year, in total, the company distributed JP¥190 to shareholders. Looking at the last 12 months of distributions, Komatsu has a trailing yield of approximately 3.6% on its current stock price of JP¥5309.00. 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.

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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. Fortunately Komatsu's payout ratio is modest, at just 42% of profit. 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. Over the last year it paid out 69% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Komatsu'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.

See our latest analysis for Komatsu

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Komatsu has grown its earnings rapidly, up 23% a year 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. Since the start of our data, 10 years ago, Komatsu has lifted its dividend by approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Komatsu for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Komatsu for the dividends alone, you should always be mindful of the risks involved. For example - Komatsu has 1 warning sign we think you should be aware of.

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.