E-Guardian Inc. (TSE:6050) Looks Interesting, And It's About To Pay A 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 E-Guardian Inc. (TSE:6050) is about to go ex-dividend in just 3 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. 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 E-Guardian's shares on or after the 27th of September will not receive the dividend, which will be paid on the 23rd of December.

The company's next dividend payment will be JP¥31.00 per share, on the back of last year when the company paid a total of JP¥31.00 to shareholders. Last year's total dividend payments show that E-Guardian has a trailing yield of 1.7% on the current share price of JP¥1781.00. If you buy this business for its dividend, you should have an idea of whether E-Guardian's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for E-Guardian

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. Fortunately E-Guardian's payout ratio is modest, at just 26% of profit. A useful secondary check can be to evaluate whether E-Guardian generated enough free cash flow to afford its dividend. The good news is it paid out just 16% of its free cash flow in the last year.

It's positive to see that E-Guardian'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 E-Guardian 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. With that in mind, we're encouraged by the steady growth at E-Guardian, with earnings per share up 5.8% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

We'd also point out that E-Guardian issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, E-Guardian has increased its dividend at approximately 34% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid E-Guardian? Earnings per share have been growing moderately, and E-Guardian is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and E-Guardian is halfway there. There's a lot to like about E-Guardian, and we would prioritise taking a closer look at it.

In light of that, while E-Guardian has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for E-Guardian 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.