Why You Might Be Interested In Mitsubishi Heavy Industries, Ltd. (TSE:7011) For Its Upcoming Dividend

It looks like Mitsubishi Heavy Industries, Ltd. (TSE:7011) is about to go 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Mitsubishi Heavy Industries investors that purchase the stock on or after the 27th of September will not receive the dividend, which will be paid on the 5th of December.

The company's next dividend payment will be JP¥11.00 per share, and in the last 12 months, the company paid a total of JP¥22.00 per share. Last year's total dividend payments show that Mitsubishi Heavy Industries has a trailing yield of 1.2% on the current share price of JP¥1904.50. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Mitsubishi 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 Mitsubishi Heavy Industries paying out a modest 29% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Mitsubishi 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 the company's payout ratio, plus analyst estimates of its future dividends.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Mitsubishi Heavy Industries's earnings per share have been growing at 18% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mitsubishi Heavy Industries has delivered 8.2% dividend growth per year on average over the past 10 years. 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

Has Mitsubishi Heavy Industries got what it takes to maintain its dividend payments? Mitsubishi Heavy Industries has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Mitsubishi Heavy Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Mitsubishi Heavy Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Mitsubishi Heavy Industries and you should be aware of it before buying any 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.