Kanematsu Corporation (TSE:8020) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy Kanematsu Corporation (TSE:8020) 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 one business day 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. Therefore, if you purchase Kanematsu's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 5th of December.

The company's next dividend payment will be JP¥50.00 per share, on the back of last year when the company paid a total of JP¥100.00 to shareholders. Based on the last year's worth of payments, Kanematsu stock has a trailing yield of around 4.1% on the current share price of JP¥2462.00. 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 Kanematsu has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Kanematsu

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Kanematsu paying out a modest 30% of its earnings. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 20% of its cash flow last year.

It's positive to see that Kanematsu'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 Kanematsu paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Kanematsu, with earnings per share up 8.8% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Kanematsu has increased its dividend at approximately 21% 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Kanematsu? Earnings per share have been growing moderately, and Kanematsu is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Kanematsu is halfway there. It's a promising combination that should mark this company worthy of closer attention.

So while Kanematsu looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Kanematsu is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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.