Income Investors Should Know That Japan Electronic Materials Corporation (TSE:6855) Goes Ex-Dividend Soon

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 Japan Electronic Materials Corporation (TSE:6855) is about to go ex-dividend in just 3 days. The ex-dividend date occurs one day 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 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. This means that investors who purchase Japan Electronic Materials' shares on or after the 27th of September will not receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥30.00 per share, and in the last 12 months, the company paid a total of JP¥40.00 per share. Based on the last year's worth of payments, Japan Electronic Materials stock has a trailing yield of around 1.6% on the current share price of JP¥2490.00. If you buy this business for its dividend, you should have an idea of whether Japan Electronic Materials's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Japan Electronic Materials

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Japan Electronic Materials paid out a comfortable 40% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Japan Electronic Materials paid out more free cash flow than it generated - 127%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Japan Electronic Materials does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Japan Electronic Materials paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Japan Electronic Materials's ability to maintain its dividend.

Click here to see how much of its profit Japan Electronic Materials paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Japan Electronic Materials, with earnings per share up 5.5% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Japan Electronic Materials has lifted its dividend by approximately 17% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Japan Electronic Materials worth buying for its dividend? Japan Electronic Materials has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Japan Electronic Materials's dividend merits.

However if you're still interested in Japan Electronic Materials as a potential investment, you should definitely consider some of the risks involved with Japan Electronic Materials. Every company has risks, and we've spotted 2 warning signs for Japan Electronic Materials (of which 1 doesn't sit too well with us!) you should know about.

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.