There's A Lot To Like About Kitoku Shinryo's (TSE:2700) Upcoming JP¥70.00 Dividend

Kitoku Shinryo Co., Ltd. (TSE:2700) is about to trade ex-dividend in the next 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. Therefore, if you purchase Kitoku Shinryo's shares on or after the 27th of December, you won't be eligible to receive the dividend, when it is paid on the 31st of March.

The company's next dividend payment will be JP¥70.00 per share, and in the last 12 months, the company paid a total of JP¥60.00 per share. Looking at the last 12 months of distributions, Kitoku Shinryo has a trailing yield of approximately 1.1% on its current stock price of JP¥5660.00. If you buy this business for its dividend, you should have an idea of whether Kitoku Shinryo's dividend is reliable and sustainable. So we need to investigate whether Kitoku Shinryo can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Kitoku Shinryo

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kitoku Shinryo is paying out just 3.3% 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. What's good is that dividends were well covered by free cash flow, with the company paying out 5.4% of its cash flow last year.

It's positive to see that Kitoku Shinryo'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 Kitoku Shinryo 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Kitoku Shinryo has grown its earnings rapidly, up 40% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Kitoku Shinryo looks like a promising growth company.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kitoku Shinryo has delivered 7.2% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Kitoku Shinryo an attractive dividend stock, or better left on the shelf? We love that Kitoku Shinryo 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. It's a promising combination that should mark this company worthy of closer attention.

So while Kitoku Shinryo looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Kitoku Shinryo that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.