Is It Smart To Buy Ocean System Corporation (TSE:3096) Before It Goes Ex-Dividend?

Ocean System Corporation (TSE:3096) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Ocean System investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥10.00 per share. Last year, in total, the company distributed JP¥20.00 to shareholders. Based on the last year's worth of payments, Ocean System has a trailing yield of 1.3% on the current stock price of JP¥1497.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Ocean System paid out just 12% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Ocean System generated enough free cash flow to afford its dividend. The good news is it paid out just 14% of its free cash flow in the 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.

See our latest analysis for Ocean System

Click here to see how much of its profit Ocean System 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Ocean System earnings per share are up 6.3% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ocean System has delivered an average of 6.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Ocean System an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Ocean System is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Ocean System is being conservative with its dividend payouts and could still perform reasonably over the long run. Ocean System looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Ocean System has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Ocean System and understanding them should be part of your investment process.

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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.