There's A Lot To Like About BroadBand Tower's (TSE:3776) Upcoming JP¥1.00 Dividend

BroadBand Tower, Inc. (TSE:3776) is about to trade ex-dividend in the next three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase BroadBand Tower's shares before the 27th of December in order to be eligible for the dividend, which will be paid on the 5th of March.

The company's upcoming dividend is JP¥1.00 a share, following on from the last 12 months, when the company distributed a total of JP¥2.00 per share to shareholders. Based on the last year's worth of payments, BroadBand Tower has a trailing yield of 1.1% on the current stock price of JP¥178.00. If you buy this business for its dividend, you should have an idea of whether BroadBand Tower's dividend is reliable and sustainable. As a result, readers should always check whether BroadBand Tower has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for BroadBand Tower

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. BroadBand Tower paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether BroadBand Tower generated enough free cash flow to afford its dividend. Luckily it paid out just 7.5% of its free cash flow last year.

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 BroadBand Tower 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, BroadBand Tower's earnings per share have been growing at 14% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, BroadBand Tower has increased its dividend at approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because BroadBand Tower is keeping back more of its profits to grow the business.

To Sum It Up

Has BroadBand Tower got what it takes to maintain its dividend payments? It's great that BroadBand Tower is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. BroadBand Tower looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while BroadBand Tower has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with BroadBand Tower and understanding them should be part of your investment process.

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.