Fuji Seiki Co.,Ltd. (TSE:6400) Passed Our Checks, And It's About To Pay A JP¥7.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Fuji Seiki Co.,Ltd. (TSE:6400) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Fuji SeikiLtd's shares on or after the 27th of December will not receive the dividend, which will be paid on the 28th of March.

The company's upcoming dividend is JP¥7.00 a share, following on from the last 12 months, when the company distributed a total of JP¥7.00 per share to shareholders. Calculating the last year's worth of payments shows that Fuji SeikiLtd has a trailing yield of 3.0% on the current share price of JP¥235.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Fuji SeikiLtd has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Fuji SeikiLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fuji SeikiLtd is paying out just 25% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 27% 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 Fuji SeikiLtd 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. This is why it's a relief to see Fuji SeikiLtd earnings per share are up 4.2% per annum over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fuji SeikiLtd has delivered an average of 11% per year annual increase in its dividend, based on the past eight years of dividend payments. 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.

Final Takeaway

Is Fuji SeikiLtd worth buying for its dividend? Earnings per share have been growing moderately, and Fuji SeikiLtd 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 Fuji SeikiLtd is halfway there. There's a lot to like about Fuji SeikiLtd, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Fuji SeikiLtd is facing. For example, we've found 3 warning signs for Fuji SeikiLtd (1 is concerning!) that deserve your attention before investing in the 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.