GMO Media (TSE:6180) Could Be A Buy For Its Upcoming 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 GMO Media Inc. (TSE:6180) is about to go ex-dividend in just 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. 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. Thus, you can purchase GMO Media's shares before the 27th of December in order to receive the dividend, which the company will pay on the 19th of March.

The company's next dividend payment will be JP¥174.00 per share, and in the last 12 months, the company paid a total of JP¥144 per share. Last year's total dividend payments show that GMO Media has a trailing yield of 2.9% on the current share price of JP¥5030.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether GMO Media can afford its dividend, and if the dividend could grow.

See our latest analysis for GMO Media

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. GMO Media paid out a comfortable 40% of its profit last year. A useful secondary check can be to evaluate whether GMO Media generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.

It's positive to see that GMO Media'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 GMO Media 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 GMO Media has grown its earnings rapidly, up 95% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. GMO Media has delivered 56% dividend growth per year on average over the past three years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

From a dividend perspective, should investors buy or avoid GMO Media? GMO Media has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

So while GMO Media looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 2 warning signs with GMO Media (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

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.