Is It Worth Considering SCAT Inc. (TSE:3974) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that SCAT Inc. (TSE:3974) is about to go ex-dividend in just 2 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase SCAT's shares before the 28th of April to receive the dividend, which will be paid on the 11th of July.

The company's upcoming dividend is JP¥7.00 a share, following on from the last 12 months, when the company distributed a total of JP¥13.00 per share to shareholders. Based on the last year's worth of payments, SCAT stock has a trailing yield of around 3.2% on the current share price of JP¥407.00. If you buy this business for its dividend, you should have an idea of whether SCAT's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

We've discovered 4 warning signs about SCAT. View them for free.

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. That's why it's good to see SCAT paying out a modest 41% 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. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.

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.

View our latest analysis for SCAT

Click here to see how much of its profit SCAT paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see SCAT's earnings per share have been shrinking at 3.3% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past seven years, SCAT has increased its dividend at approximately 10% a year on average.

The Bottom Line

Is SCAT worth buying for its dividend? SCAT has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, it's hard to get excited about SCAT from a dividend perspective.

While it's tempting to invest in SCAT for the dividends alone, you should always be mindful of the risks involved. Be aware that SCAT is showing 4 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

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.