Be Sure To Check Out Shinwa Co., Ltd. (TSE:7607) Before It Goes Ex-Dividend

Readers hoping to buy Shinwa Co., Ltd. (TSE:7607) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Thus, you can purchase Shinwa's shares before the 28th of August in order to receive the dividend, which the company will pay on the 25th of November.

The company's upcoming dividend is JP¥56.00 a share, following on from the last 12 months, when the company distributed a total of JP¥112 per share to shareholders. Calculating the last year's worth of payments shows that Shinwa has a trailing yield of 3.4% on the current share price of JP¥3320.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Shinwa has been able to grow its dividends, or if the dividend might be cut.

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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. That's why it's good to see Shinwa paying out a modest 40% of its earnings. A useful secondary check can be to evaluate whether Shinwa generated enough free cash flow to afford its dividend. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Shinwa'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 Shinwa

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Shinwa's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. 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. Shinwa has delivered 11% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy Shinwa for the upcoming dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but Shinwa is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Shinwa for the dividends alone, you should always be mindful of the risks involved. For example, Shinwa has 2 warning signs (and 1 which is significant) we think you should know about.

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.