Why It Might Not Make Sense To Buy Casio Computer Co.,Ltd. (TSE:6952) For Its Upcoming Dividend

Casio Computer Co.,Ltd. (TSE:6952) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Casio ComputerLtd's shares before the 27th of September to receive the dividend, which will be paid on the 4th of December.

The company's upcoming dividend is JP¥22.50 a share, following on from the last 12 months, when the company distributed a total of JP¥45.00 per share to shareholders. Looking at the last 12 months of distributions, Casio ComputerLtd has a trailing yield of approximately 3.9% on its current stock price of JP¥1158.00. 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! As a result, readers should always check whether Casio ComputerLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Casio ComputerLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Casio ComputerLtd paid out 71% of its earnings to investors last year, a normal payout level for most businesses. 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. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Casio ComputerLtd'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Casio ComputerLtd's earnings per share have fallen at approximately 6.5% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Casio ComputerLtd has delivered an average of 8.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Should investors buy Casio ComputerLtd for the upcoming dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Casio ComputerLtd.

Although, if you're still interested in Casio ComputerLtd and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 1 warning sign for Casio ComputerLtd 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.