Should You Buy Mitsubishi HC Capital Inc. (TSE:8593) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Mitsubishi HC Capital Inc. (TSE:8593) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Mitsubishi HC Capital's shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 10th of June.

The company's upcoming dividend is JP¥19.00 a share, following on from the last 12 months, when the company distributed a total of JP¥38.00 per share to shareholders. Looking at the last 12 months of distributions, Mitsubishi HC Capital has a trailing yield of approximately 3.5% on its current stock price of JP¥1088.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Mitsubishi HC Capital

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mitsubishi HC Capital paid out a comfortable 47% of its profit last year.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 Mitsubishi HC Capital's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Mitsubishi HC Capital has lifted its dividend by approximately 19% a year on average.

The Bottom Line

Has Mitsubishi HC Capital got what it takes to maintain its dividend payments? Mitsubishi HC Capital has seen its earnings per share stagnate in recent years, although the company reinvests more than half of its profits in the business, which could bode well for its future prospects. In summary, Mitsubishi HC Capital appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

While it's tempting to invest in Mitsubishi HC Capital for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Mitsubishi HC Capital (of which 1 is concerning!) you should know about.

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.