Here's What We Like About Komatsu Wall Industry's (TSE:7949) Upcoming Dividend

Readers hoping to buy Komatsu Wall Industry Co., Ltd. (TSE:7949) 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. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Komatsu Wall Industry's shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 27th of June.

The company's upcoming dividend is JP¥35.00 a share, following on from the last 12 months, when the company distributed a total of JP¥65.00 per share to shareholders. Looking at the last 12 months of distributions, Komatsu Wall Industry has a trailing yield of approximately 4.3% on its current stock price of JP¥1529.00. 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! 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. Its dividend payout ratio is 77% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Komatsu Wall Industry generated enough free cash flow to afford its dividend. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.

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 Komatsu Wall Industry

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why we're glad to see earnings per share up 8.3% over the past 12 months. Decent historical earnings per share growth suggests Komatsu Wall Industry has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Komatsu Wall Industry has increased its dividend at approximately 4.1% 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.

The Bottom Line

Has Komatsu Wall Industry got what it takes to maintain its dividend payments? Earnings per share growth has been modest and Komatsu Wall Industry paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, while it has some positive characteristics, we're not inclined to race out and buy Komatsu Wall Industry today.

In light of that, while Komatsu Wall Industry has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for Komatsu Wall Industry 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.