Digital Information Technologies Corporation (TSE:3916) Looks Interesting, And It's About To Pay A Dividend

Digital Information Technologies Corporation (TSE:3916) is about to trade ex-dividend in the next 2 days. The ex-dividend date is usually set to be one business day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Digital Information Technologies' shares on or after the 27th of June will not receive the dividend, which will be paid on the 30th of September.

The company's upcoming dividend is JP¥23.00 a share, following on from the last 12 months, when the company distributed a total of JP¥46.00 per share to shareholders. Based on the last year's worth of payments, Digital Information Technologies has a trailing yield of 2.4% on the current stock price of JP¥1881.00. 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 Digital Information Technologies can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Digital Information Technologies

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Digital Information Technologies paid out just 17% 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 Digital Information Technologies generated enough free cash flow to afford its dividend. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Digital Information Technologies'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 how much of its profit Digital Information Technologies 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Digital Information Technologies's earnings have been skyrocketing, up 25% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Digital Information Technologies has delivered 28% dividend growth per year on average over the past nine years. 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 Digital Information Technologies? Earnings per share have grown at a nice rate in recent times and over the last year, Digital Information Technologies paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Digital Information Technologies, and we would prioritise taking a closer look at it.

While it's tempting to invest in Digital Information Technologies for the dividends alone, you should always be mindful of the risks involved. For example - Digital Information Technologies has 1 warning sign we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com