Read This Before Considering Kitoku Shinryo Co., Ltd. (TYO:2700) For Its Upcoming JP¥25.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kitoku Shinryo Co., Ltd. (TYO:2700) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 27th of March.

Kitoku Shinryo's next dividend payment will be JP¥25.00 per share. Last year, in total, the company distributed JP¥50.00 to shareholders. Based on the last year's worth of payments, Kitoku Shinryo stock has a trailing yield of around 1.4% on the current share price of ¥3500. If you buy this business for its dividend, you should have an idea of whether Kitoku Shinryo's dividend is reliable and sustainable. As a result, readers should always check whether Kitoku Shinryo has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Kitoku Shinryo

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Kitoku Shinryo has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether Kitoku Shinryo generated enough free cash flow to afford its dividend. Luckily it paid out just 6.9% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Kitoku Shinryo paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Kitoku Shinryo's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

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, Kitoku Shinryo has increased its dividend at approximately 7.2% a year on average.

Final Takeaway

Should investors buy Kitoku Shinryo for the upcoming dividend? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. Overall, it's hard to get excited about Kitoku Shinryo from a dividend perspective.

While it's tempting to invest in Kitoku Shinryo for the dividends alone, you should always be mindful of the risks involved. We've identified 3 warning signs with Kitoku Shinryo (at least 2 which are potentially serious), and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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