Here's What We Like About Sun Messe's (TSE:7883) Upcoming Dividend

Sun Messe Co., Ltd. (TSE:7883) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase Sun Messe's shares before the 27th of September in order to receive the dividend, which the company will pay on the 11th of December.

The company's next dividend payment will be JP¥4.00 per share, and in the last 12 months, the company paid a total of JP¥8.00 per share. Based on the last year's worth of payments, Sun Messe stock has a trailing yield of around 2.1% on the current share price of JP¥376.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Sun Messe has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Sun Messe

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. Fortunately Sun Messe's payout ratio is modest, at just 40% of profit. A useful secondary check can be to evaluate whether Sun Messe generated enough free cash flow to afford its dividend. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Sun Messe'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 Sun Messe 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Sun Messe's earnings per share have been growing at 13% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Sun Messe has increased its dividend at approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Sun Messe is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Sun Messe? We love that Sun Messe is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Sun Messe looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Sun Messe looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Sun Messe 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.