There's A Lot To Like About ANEST IWATA's (TSE:6381) Upcoming JP¥41.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ANEST IWATA Corporation (TSE:6381) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be two business days 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 can take two business days or more to settle. In other words, investors can purchase ANEST IWATA's shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 9th of December.

The company's next dividend payment will be JP¥41.00 per share, on the back of last year when the company paid a total of JP¥83.00 to shareholders. Based on the last year's worth of payments, ANEST IWATA has a trailing yield of 5.2% on the current stock price of JP¥1608.00. If you buy this business for its dividend, you should have an idea of whether ANEST IWATA's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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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. ANEST IWATA paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether ANEST IWATA generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 29% 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.

Check out our latest analysis for ANEST IWATA

Click here to see how much of its profit ANEST IWATA paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at ANEST IWATA, with earnings per share up 10.0% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, ANEST IWATA has lifted its dividend by approximately 18% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid ANEST IWATA? Earnings per share growth has been growing somewhat, and ANEST IWATA is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but ANEST IWATA is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in ANEST IWATA for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with ANEST IWATA and understanding them should be part of your investment process.

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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.