There's A Lot To Like About Renesas Electronics' (TSE:6723) Upcoming JP¥28.00 Dividend

Renesas Electronics Corporation (TSE:6723) stock is about to trade ex-dividend in three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Renesas Electronics' shares before the 27th of December to receive the dividend, which will be paid on the 31st of March.

The company's upcoming dividend is JP¥28.00 a share, following on from the last 12 months, when the company distributed a total of JP¥28.00 per share to shareholders. Looking at the last 12 months of distributions, Renesas Electronics has a trailing yield of approximately 1.4% on its current stock price of JP¥2029.50. If you buy this business for its dividend, you should have an idea of whether Renesas Electronics's dividend is reliable and sustainable. So we need to investigate whether Renesas Electronics can afford its dividend, and if the dividend could grow.

View our latest analysis for Renesas Electronics

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. Renesas Electronics is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Renesas Electronics's earnings have been skyrocketing, up 37% per annum for the past five years. Renesas Electronics earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

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

The Bottom Line

Has Renesas Electronics got what it takes to maintain its dividend payments? Renesas Electronics 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. Overall we think this is an attractive combination and worthy of further research.

So while Renesas Electronics looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Renesas Electronics has 2 warning signs we think 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.