Be Sure To Check Out Socionext Inc. (TSE:6526) Before It Goes Ex-Dividend

It looks like Socionext Inc. (TSE:6526) is about to go ex-dividend in the next 2 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Socionext's shares on or after the 28th of March will not receive the dividend, which will be paid on the 7th of June.

The company's next dividend payment will be JP¥23.00 per share. Last year, in total, the company distributed JP¥46.00 to shareholders. Based on the last year's worth of payments, Socionext stock has a trailing yield of around 1.1% on the current share price of JP¥4034.00. If you buy this business for its dividend, you should have an idea of whether Socionext's dividend is reliable and sustainable. So we need to investigate whether Socionext can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Socionext

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Socionext paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether Socionext generated enough free cash flow to afford its dividend. Fortunately, it paid out only 47% of its free cash flow in the past year.

It's positive to see that Socionext'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. That's why it's comforting to see Socionext's earnings have been skyrocketing, up 130% per annum for the past three years. Socionext is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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.

Given that Socionext has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Has Socionext got what it takes to maintain its dividend payments? Socionext 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.

On that note, you'll want to research what risks Socionext is facing. Case in point: We've spotted 2 warning signs for Socionext 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.