There's A Lot To Like About Japan Electronic Materials' (TSE:6855) Upcoming JP¥20.00 Dividend

Japan Electronic Materials Corporation (TSE:6855) stock is about to trade ex-dividend in two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Japan Electronic Materials investors that purchase the stock on or after the 28th of March will not receive the dividend, which will be paid on the 10th of June.

The company's next dividend payment will be JP¥20.00 per share. Last year, in total, the company distributed JP¥40.00 to shareholders. Looking at the last 12 months of distributions, Japan Electronic Materials has a trailing yield of approximately 1.5% on its current stock price of JP¥2700.00. 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 Japan Electronic Materials

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. Japan Electronic Materials paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 16% 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 how much of its profit Japan Electronic Materials 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Japan Electronic Materials's earnings per share have been growing at 18% a year for the past five years. Japan Electronic Materials has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Japan Electronic Materials has lifted its dividend by approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Has Japan Electronic Materials got what it takes to maintain its dividend payments? Japan Electronic Materials's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Japan Electronic Materials looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Be aware that Japan Electronic Materials is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.