Is It Smart To Buy Environmental Control Center Co.,Ltd. (TSE:4657) Before It Goes Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Environmental Control Center Co.,Ltd. (TSE:4657) is about to go ex-dividend in just four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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 Environmental Control CenterLtd's shares on or after the 27th of June, you won't be eligible to receive the dividend, when it is paid on the 26th of September.

The company's next dividend payment will be JP¥8.00 per share. Last year, in total, the company distributed JP¥8.00 to shareholders. Based on the last year's worth of payments, Environmental Control CenterLtd stock has a trailing yield of around 1.9% on the current share price of JP¥428.00. 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! So we need to investigate whether Environmental Control CenterLtd can afford its dividend, and if the dividend could grow.

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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. That's why it's good to see Environmental Control CenterLtd paying out a modest 32% of its earnings. A useful secondary check can be to evaluate whether Environmental Control CenterLtd generated enough free cash flow to afford its dividend. Luckily it paid out just 3.1% of its free cash flow last year.

It's positive to see that Environmental Control CenterLtd'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 Environmental Control CenterLtd

Click here to see how much of its profit Environmental Control CenterLtd 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. 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 Environmental Control CenterLtd, with earnings per share up 9.2% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Environmental Control CenterLtd has delivered an average of 18% per year annual increase in its dividend, based on the past six years of dividend payments. 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

Has Environmental Control CenterLtd got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Environmental Control CenterLtd is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 Environmental Control CenterLtd is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Environmental Control CenterLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for Environmental Control CenterLtd that we strongly recommend you have a look at before investing in the company.

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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.