Sakai Heavy Industries, Ltd. (TSE:6358) Passed Our Checks, And It's About To Pay A JP¥85.00 Dividend

Sakai Heavy Industries, Ltd. (TSE:6358) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. In other words, investors can purchase Sakai Heavy Industries' shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 11th of December.

The company's next dividend payment will be JP¥85.00 per share. Last year, in total, the company distributed JP¥215 to shareholders. Based on the last year's worth of payments, Sakai Heavy Industries stock has a trailing yield of around 4.6% on the current share price of JP¥4715.00. If you buy this business for its dividend, you should have an idea of whether Sakai Heavy Industries's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Sakai Heavy Industries

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Sakai Heavy Industries paying out a modest 46% of its earnings. A useful secondary check can be to evaluate whether Sakai Heavy Industries generated enough free cash flow to afford its dividend. Fortunately, it paid out only 42% of its free cash flow in the past year.

It's positive to see that Sakai Heavy Industries'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 how much of its profit Sakai Heavy Industries 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Sakai Heavy Industries has grown its earnings rapidly, up 26% a year for the past five years. Sakai Heavy Industries is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Sakai Heavy Industries has lifted its dividend by approximately 16% 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 Sakai Heavy Industries got what it takes to maintain its dividend payments? It's great that Sakai Heavy Industries is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Sakai Heavy Industries is facing. Case in point: We've spotted 1 warning sign for Sakai Heavy Industries 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.