Fukuda Denshi Co., Ltd. (TSE:6960) Passed Our Checks, And It's About To Pay A JP¥85.00 Dividend

Readers hoping to buy Fukuda Denshi Co., Ltd. (TSE:6960) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Fukuda Denshi's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 4th of December.

The company's next dividend payment will be JP¥85.00 per share, on the back of last year when the company paid a total of JP¥170 to shareholders. Looking at the last 12 months of distributions, Fukuda Denshi has a trailing yield of approximately 2.2% on its current stock price of JP¥7570.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Fukuda Denshi

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fukuda Denshi is paying out just 20% 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. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Fukuda Denshi'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 Fukuda Denshi paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Fukuda Denshi's earnings per share have risen 15% per annum over the last five years. Fukuda Denshi has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

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, Fukuda Denshi has lifted its dividend by approximately 15% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Has Fukuda Denshi got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Fukuda Denshi paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

So while Fukuda Denshi looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Fukuda Denshi and you should be aware of this before buying any shares.

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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.