Is It Smart To Buy Mitsubishi Paper Mills Limited (TSE:3864) Before It Goes Ex-Dividend?

Mitsubishi Paper Mills Limited (TSE:3864) stock is about to trade ex-dividend in three 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. Thus, you can purchase Mitsubishi Paper Mills' shares before the 28th of March in order to receive the dividend, which the company will pay on the 10th of June.

The company's upcoming dividend is JP¥15.00 a share, following on from the last 12 months, when the company distributed a total of JP¥15.00 per share to shareholders. Based on the last year's worth of payments, Mitsubishi Paper Mills has a trailing yield of 2.2% on the current stock price of JP¥692.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Mitsubishi Paper Mills has a low and conservative payout ratio of just 6.2% of its income after tax. A useful secondary check can be to evaluate whether Mitsubishi Paper Mills generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 3.3% of its cash flow 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.

View our latest analysis for Mitsubishi Paper Mills

Click here to see how much of its profit Mitsubishi Paper Mills 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. That's why it's comforting to see Mitsubishi Paper Mills's earnings have been skyrocketing, up 74% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Mitsubishi Paper Mills looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mitsubishi Paper Mills has delivered 17% dividend growth per year on average over the past seven years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Mitsubishi Paper Mills worth buying for its dividend? We love that Mitsubishi Paper Mills 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. Mitsubishi Paper Mills looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Mitsubishi Paper Mills is facing. For example, Mitsubishi Paper Mills has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.