There's A Lot To Like About Tokyo Electron's (TSE:8035) Upcoming JP¥237.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tokyo Electron Limited (TSE:8035) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Thus, you can purchase Tokyo Electron's shares before the 27th of September in order to receive the dividend, which the company will pay on the 9th of December.

The company's next dividend payment will be JP¥237.00 per share, on the back of last year when the company paid a total of JP¥519 to shareholders. Last year's total dividend payments show that Tokyo Electron has a trailing yield of 2.1% on the current share price of JP¥24245.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Tokyo Electron

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Tokyo Electron paying out a modest 43% of its earnings. 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. Over the last year, it paid out more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Tokyo Electron'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 fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Tokyo Electron's earnings per share have risen 13% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Tokyo Electron has lifted its dividend by approximately 41% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Tokyo Electron for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Tokyo Electron paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Tokyo Electron, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Tokyo Electron is facing. To help with this, we've discovered 2 warning signs for Tokyo Electron (1 is potentially serious!) that you ought to be aware of before buying the shares.

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.