Fulltech Co.Ltd. (TSE:6546) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy Fulltech Co.Ltd. (TSE:6546) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase FulltechLtd's shares on or after the 27th of December will not receive the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be JP¥22.00 per share. Last year, in total, the company distributed JP¥28.00 to shareholders. Based on the last year's worth of payments, FulltechLtd stock has a trailing yield of around 2.4% on the current share price of JP¥1179.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for FulltechLtd

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. FulltechLtd paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 51% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that FulltechLtd'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 FulltechLtd 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see FulltechLtd earnings per share are up 8.5% per annum over the last five years. Decent historical earnings per share growth suggests FulltechLtd has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. FulltechLtd has delivered an average of 1.4% per year annual increase in its dividend, based on the past eight years of dividend payments.

To Sum It Up

Is FulltechLtd an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and FulltechLtd paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy FulltechLtd today.

While it's tempting to invest in FulltechLtd for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for FulltechLtd (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

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.