Just Three Days Till Central Security Patrols Co., Ltd. (TSE:9740) Will Be Trading Ex-Dividend

It looks like Central Security Patrols Co., Ltd. (TSE:9740) is about to go ex-dividend in the next 3 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. Meaning, you will need to purchase Central Security Patrols' shares before the 27th of February to receive the dividend, which will be paid on the 2nd of June.

The company's next dividend payment will be JP¥30.00 per share. Last year, in total, the company distributed JP¥60.00 to shareholders. Calculating the last year's worth of payments shows that Central Security Patrols has a trailing yield of 2.1% on the current share price of JP¥2908.00. If you buy this business for its dividend, you should have an idea of whether Central Security Patrols's dividend is reliable and sustainable. So we need to investigate whether Central Security Patrols can afford its dividend, and if the dividend could grow.

See our latest analysis for Central Security Patrols

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. Central Security Patrols is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 142% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Central Security Patrols does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Central Security Patrols's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Central Security Patrols to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Central Security Patrols earnings per share are up 2.8% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Central Security Patrols has lifted its dividend by approximately 7.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Central Security Patrols got what it takes to maintain its dividend payments? Central Security Patrols delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 142% of its cash flow over the last year, which is a mediocre outcome. To summarise, Central Security Patrols looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you want to look further into Central Security Patrols, it's worth knowing the risks this business faces. To help with this, we've discovered 2 warning signs for Central Security Patrols that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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

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.