Dividend Investors: Don't Be Too Quick To Buy C.E.Management Integrated Laboratory Co.Ltd (TSE:6171) For Its Upcoming Dividend

It looks like C.E.Management Integrated Laboratory Co.Ltd (TSE:6171) is about to go ex-dividend in the next 2 days. 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. 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. Therefore, if you purchase C.E.Management Integrated LaboratoryLtd's shares on or after the 27th of June, you won't be eligible to receive the dividend, when it is paid on the 4th of September.

The company's next dividend payment will be JP¥6.00 per share, and in the last 12 months, the company paid a total of JP¥12.00 per share. Based on the last year's worth of payments, C.E.Management Integrated LaboratoryLtd stock has a trailing yield of around 3.7% on the current share price of JP¥326.00. 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 C.E.Management Integrated LaboratoryLtd can afford its dividend, and if the dividend could grow.

View our latest analysis for C.E.Management Integrated LaboratoryLtd

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. C.E.Management Integrated LaboratoryLtd paid out 93% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. Luckily it paid out just 18% of its free cash flow last year.

It's good to see that while C.E.Management Integrated LaboratoryLtd's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see how much of its profit C.E.Management Integrated LaboratoryLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by C.E.Management Integrated LaboratoryLtd's 11% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. C.E.Management Integrated LaboratoryLtd has delivered an average of 12% per year annual increase in its dividend, based on the past nine years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. C.E.Management Integrated LaboratoryLtd is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

From a dividend perspective, should investors buy or avoid C.E.Management Integrated LaboratoryLtd? It's not a great combination to see a company with earnings in decline and paying out 93% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with C.E.Management Integrated LaboratoryLtd. For instance, we've identified 5 warning signs for C.E.Management Integrated LaboratoryLtd (1 is a bit concerning) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com