Tsubakimoto Chain Co. (TSE:6371) Looks Interesting, And It's About To Pay A Dividend

Tsubakimoto Chain Co. (TSE:6371) stock is about to trade ex-dividend in 3 days. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Tsubakimoto Chain's shares on or after the 28th of March will not receive the dividend, which will be paid on the 30th of June.

The company's next dividend payment will be JP¥47.00 per share. Last year, in total, the company distributed JP¥80.00 to shareholders. Looking at the last 12 months of distributions, Tsubakimoto Chain has a trailing yield of approximately 4.1% on its current stock price of JP¥1974.00. 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 investigate whether Tsubakimoto Chain can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Tsubakimoto Chain paying out a modest 32% of its earnings. A useful secondary check can be to evaluate whether Tsubakimoto Chain generated enough free cash flow to afford its dividend. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Tsubakimoto Chain'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.

View our latest analysis for Tsubakimoto Chain

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Tsubakimoto Chain's earnings per share have risen 12% per annum over the last five years. Tsubakimoto Chain has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Tsubakimoto Chain has lifted its dividend by approximately 14% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Tsubakimoto Chain an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Tsubakimoto Chain paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Tsubakimoto Chain is facing. To help with this, we've discovered 1 warning sign for Tsubakimoto Chain that you should be aware of before investing in their shares.

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.