Be Sure To Check Out Kamei Corporation (TSE:8037) Before It Goes Ex-Dividend

Kamei Corporation (TSE:8037) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Kamei 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¥28.00 per share. Last year, in total, the company distributed JP¥56.00 to shareholders. Calculating the last year's worth of payments shows that Kamei has a trailing yield of 2.7% on the current share price of JP¥2043.00. If you buy this business for its dividend, you should have an idea of whether Kamei's dividend is reliable and sustainable. So we need to investigate whether Kamei can afford its dividend, and if the dividend could grow.

See our latest analysis for Kamei

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. Kamei has a low and conservative payout ratio of just 17% of its income after tax. A useful secondary check can be to evaluate whether Kamei generated enough free cash flow to afford its dividend. It paid out 9.6% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Kamei'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 Kamei 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Kamei, with earnings per share up 7.9% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kamei has delivered 14% 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.

The Bottom Line

Should investors buy Kamei for the upcoming dividend? Earnings per share have been growing moderately, and Kamei 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 Kamei is halfway there. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about Kamei's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.