Kato Sangyo Co., Ltd. (TSE:9869) Looks Interesting, And It's About To Pay A Dividend

It looks like Kato Sangyo Co., Ltd. (TSE:9869) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Kato Sangyo's shares on or after the 28th of March will not receive the dividend, which will be paid on the 4th of June.

The company's next dividend payment will be JP¥70.00 per share. Last year, in total, the company distributed JP¥140 to shareholders. Based on the last year's worth of payments, Kato Sangyo stock has a trailing yield of around 2.9% on the current share price of JP¥4895.00. If you buy this business for its dividend, you should have an idea of whether Kato Sangyo's dividend is reliable and sustainable. So we need to investigate whether Kato Sangyo can afford its dividend, and if the dividend could grow.

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. Kato Sangyo has a low and conservative payout ratio of just 25% of its income after tax. 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. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Kato Sangyo'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.

Check out our latest analysis for Kato Sangyo

Click here to see how much of its profit Kato Sangyo 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Kato Sangyo's earnings per share have been growing at 19% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

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, Kato Sangyo has increased its dividend at approximately 12% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

From a dividend perspective, should investors buy or avoid Kato Sangyo? Kato Sangyo has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Kato Sangyo looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Kato Sangyo for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Kato Sangyo and you should be aware of this before buying any 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.