Is It Smart To Buy Tokyo Seimitsu Co., Ltd. (TSE:7729) Before It Goes Ex-Dividend?

Tokyo Seimitsu Co., Ltd. (TSE:7729) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be two business days 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 as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Tokyo Seimitsu's shares before the 28th of March in order to be eligible for the dividend, which will be paid on the 24th of June.

The company's next dividend payment will be JP¥114.00 per share, on the back of last year when the company paid a total of JP¥228 to shareholders. Based on the last year's worth of payments, Tokyo Seimitsu has a trailing yield of 2.7% on the current stock price of JP¥8579.00. If you buy this business for its dividend, you should have an idea of whether Tokyo Seimitsu's dividend is reliable and sustainable. So we need to investigate whether Tokyo Seimitsu can afford its dividend, and if the dividend could grow.

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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. That's why it's good to see Tokyo Seimitsu paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Tokyo Seimitsu generated enough free cash flow to afford its dividend. It paid out more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Tokyo Seimitsu'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.

See our latest analysis for Tokyo Seimitsu

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Tokyo Seimitsu's earnings per share have risen 13% per annum over the last five years. Tokyo Seimitsu is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tokyo Seimitsu has delivered an average of 22% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Tokyo Seimitsu? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 2 warning signs we've spotted with Tokyo Seimitsu (including 1 which is a bit unpleasant).

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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.