Interested In Power Solutions' (TSE:4450) Upcoming JP¥12.50 Dividend? You Have Three Days Left

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 Power Solutions, Ltd. (TSE:4450) is about to go ex-dividend in just three 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. 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. Thus, you can purchase Power Solutions' shares before the 27th of June in order to receive the dividend, which the company will pay on the 2nd of September.

The company's upcoming dividend is JP¥12.50 a share, following on from the last 12 months, when the company distributed a total of JP¥22.00 per share to shareholders. Looking at the last 12 months of distributions, Power Solutions has a trailing yield of approximately 1.8% on its current stock price of JP¥1365.00. 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! As a result, readers should always check whether Power Solutions has been able to grow its dividends, or if the dividend might be cut.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Power Solutions is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Power Solutions generated enough free cash flow to afford its dividend. It paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Power Solutions'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.

View our latest analysis for Power Solutions

Click here to see how much of its profit Power Solutions 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Power Solutions earnings per share are up 4.4% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Unfortunately Power Solutions has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Is Power Solutions worth buying for its dividend? Earnings per share have been growing at a steady rate, and Power Solutions paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it's hard to get excited about Power Solutions from a dividend perspective.

While it's tempting to invest in Power Solutions for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Power Solutions that you should be aware of before investing in their shares.

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.