Sangetsu Corporation (TSE:8130) Is About To Go Ex-Dividend, And It Pays A 5.3% Yield

Readers hoping to buy Sangetsu Corporation (TSE:8130) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Sangetsu's shares before the 27th of September to receive the dividend, which will be paid on the 2nd of December.

The company's upcoming dividend is JP¥75.00 a share, following on from the last 12 months, when the company distributed a total of JP¥150 per share to shareholders. Last year's total dividend payments show that Sangetsu has a trailing yield of 5.3% on the current share price of JP¥2838.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Sangetsu

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sangetsu is paying out an acceptable 64% of its profit, a common payout level among most companies. 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. It paid out 98% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While Sangetsu'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. Were this to happen repeatedly, this would be a risk to Sangetsu's ability to maintain its dividend.

Click here to see how much of its profit Sangetsu 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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Sangetsu's earnings have been skyrocketing, up 31% per annum for the past five years. Earnings have been growing quickly, 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. Sangetsu has delivered 15% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Has Sangetsu got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 98% of its cashflow, which is uncomfortably high. In summary, it's hard to get excited about Sangetsu from a dividend perspective.

If you want to look further into Sangetsu, it's worth knowing the risks this business faces. To help with this, we've discovered 1 warning sign for Sangetsu 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.

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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.