Read This Before Considering Sato Corporation (TSE:6287) For Its Upcoming JP¥38.00 Dividend

Sato Corporation (TSE:6287) is about to trade ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Sato's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 9th of December.

The company's upcoming dividend is JP¥38.00 a share, following on from the last 12 months, when the company distributed a total of JP¥76.00 per share to shareholders. Based on the last year's worth of payments, Sato stock has a trailing yield of around 3.2% on the current share price of JP¥2344.00. If you buy this business for its dividend, you should have an idea of whether Sato's dividend is reliable and sustainable. So we need to investigate whether Sato can afford its dividend, and if the dividend could grow.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Fortunately Sato's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether Sato generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Sato'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.

Check out our latest analysis for Sato

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Sato's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A high payout ratio of 34% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Sato could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sato has delivered 6.1% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy Sato for the upcoming dividend? Earnings per share have been flat over the 10-year timeframe we consider, and Sato paid out less than half its earnings and more than half its free cashflow over the last year. To summarise, Sato looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Wondering what the future holds for Sato? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.