Should You Buy Ensuiko Sugar Refining Co., Ltd. (TSE:2112) 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 Ensuiko Sugar Refining Co., Ltd. (TSE:2112) is about to go ex-dividend in just 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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 Ensuiko Sugar Refining's shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 30th of June.

The company's next dividend payment will be JP¥10.00 per share. Last year, in total, the company distributed JP¥10.00 to shareholders. Looking at the last 12 months of distributions, Ensuiko Sugar Refining has a trailing yield of approximately 2.8% on its current stock price of JP¥357.00. If you buy this business for its dividend, you should have an idea of whether Ensuiko Sugar Refining's dividend is reliable and sustainable. As a result, readers should always check whether Ensuiko Sugar Refining has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ensuiko Sugar Refining is paying out just 6.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 4.3% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Ensuiko Sugar Refining'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 Ensuiko Sugar Refining

Click here to see how much of its profit Ensuiko Sugar Refining 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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Ensuiko Sugar Refining'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. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ensuiko Sugar Refining has delivered an average of 7.2% 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.

Final Takeaway

Should investors buy Ensuiko Sugar Refining for the upcoming dividend? We love that Ensuiko Sugar Refining 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.

On that note, you'll want to research what risks Ensuiko Sugar Refining is facing. Our analysis shows 2 warning signs for Ensuiko Sugar Refining and you should be aware of these 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.