Do These 3 Checks Before Buying Mobile Factory, Inc. (TSE:3912) For Its Upcoming Dividend

It looks like Mobile Factory, Inc. (TSE:3912) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Thus, you can purchase Mobile Factory's shares before the 27th of December in order to receive the dividend, which the company will pay on the 25th of March.

The company's upcoming dividend is JP¥37.00 a share, following on from the last 12 months, when the company distributed a total of JP¥37.00 per share to shareholders. Based on the last year's worth of payments, Mobile Factory stock has a trailing yield of around 3.9% on the current share price of JP¥937.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Mobile Factory

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mobile Factory distributed an unsustainably high 198% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Mobile Factory's earnings per share have plummeted approximately 42% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past nine years, Mobile Factory has increased its dividend at approximately 16% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Mobile Factory is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Should investors buy Mobile Factory for the upcoming dividend? Earnings per share are in decline and Mobile Factory is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Mobile Factory doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Mobile Factory don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 4 warning signs for Mobile Factory you should be aware of.

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.