Be Sure To Check Out Muto Seiko Co. (TSE:7927) Before It Goes Ex-Dividend

Muto Seiko Co. (TSE:7927) stock is about to trade ex-dividend in 3 days. 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. 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. Therefore, if you purchase Muto Seiko's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 12th of December.

The company's next dividend payment will be JP¥16.00 per share, on the back of last year when the company paid a total of JP¥93.50 to shareholders. Based on the last year's worth of payments, Muto Seiko stock has a trailing yield of around 5.6% on the current share price of JP¥1665.00. If you buy this business for its dividend, you should have an idea of whether Muto Seiko's dividend is reliable and sustainable. So we need to investigate whether Muto Seiko can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Muto Seiko

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. Fortunately Muto Seiko's payout ratio is modest, at just 37% of profit. 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. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.

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.

Click here to see how much of its profit Muto Seiko paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Muto Seiko has grown its earnings rapidly, up 132% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Muto Seiko has delivered 19% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Muto Seiko? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Muto Seiko has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 3 warning signs with Muto Seiko and understanding them should be part of your investment process.

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.