Should You Buy Komatsu Wall Industry Co., Ltd. (TSE:7949) For Its Upcoming Dividend?

Komatsu Wall Industry Co., Ltd. (TSE:7949) is about to trade ex-dividend in the next three days. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Komatsu Wall Industry's shares on or after the 29th of September will not receive the dividend, which will be paid on the 25th of November.

The company's next dividend payment will be JP¥65.00 per share, and in the last 12 months, the company paid a total of JP¥130 per share. Last year's total dividend payments show that Komatsu Wall Industry has a trailing yield of 5.0% on the current share price of JP¥2600.00. 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. Komatsu Wall Industry paid out a comfortable 43% of its profit last year. 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 paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Komatsu Wall Industry'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.

See 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why we're glad to see earnings per share up 12% over the past 12 months. Komatsu Wall Industry has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Komatsu Wall Industry has delivered an average of 47% per year annual increase in its dividend, based on the past two years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Komatsu Wall Industry for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Komatsu Wall Industry looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Komatsu Wall Industry has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Komatsu Wall Industry and you should be aware of this before buying any shares.

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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.