Is It Smart To Buy LINTEC Corporation (TSE:7966) Before It Goes Ex-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 LINTEC Corporation (TSE:7966) is about to go ex-dividend in just 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. Therefore, if you purchase LINTEC's shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 5th of June.

The company's next dividend payment will be JP¥50.00 per share. Last year, in total, the company distributed JP¥100.00 to shareholders. Last year's total dividend payments show that LINTEC has a trailing yield of 3.5% on the current share price of JP¥2877.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. That's why it's good to see LINTEC paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether LINTEC generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that LINTEC'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 LINTEC

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

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. With that in mind, we're encouraged by the steady growth at LINTEC, with earnings per share up 7.4% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, LINTEC has increased its dividend at approximately 9.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid LINTEC? Earnings per share have been growing moderately, and LINTEC is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but LINTEC is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about LINTEC, and we would prioritise taking a closer look at it.

So while LINTEC looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for LINTEC you should be aware of.

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.