Soliton Systems K.K. (TSE:3040) Looks Interesting, And It's About To Pay A Dividend

It looks like Soliton Systems K.K. (TSE:3040) is about to go 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 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. Therefore, if you purchase Soliton Systems K.K's shares on or after the 27th of December, you won't be eligible to receive the dividend, when it is paid on the 31st of March.

The company's next dividend payment will be JP¥39.00 per share. Last year, in total, the company distributed JP¥27.00 to shareholders. Calculating the last year's worth of payments shows that Soliton Systems K.K has a trailing yield of 2.3% on the current share price of JP¥1155.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Soliton Systems K.K can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Soliton Systems K.K

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. Soliton Systems K.K paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 20% 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 Soliton Systems K.K 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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Soliton Systems K.K has grown its earnings rapidly, up 34% a year for the past five years. Soliton Systems K.K 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.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Soliton Systems K.K has lifted its dividend by approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy Soliton Systems K.K for the upcoming dividend? We love that Soliton Systems K.K is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Soliton Systems K.K looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Soliton Systems K.K for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Soliton Systems K.K you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.