Is It Smart To Buy Computer Engineering & Consulting Ltd. (TSE:9692) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Computer Engineering & Consulting Ltd. (TSE:9692) is about to trade ex-dividend in the next three 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Computer Engineering & Consulting's shares before the 30th of January in order to be eligible for the dividend, which will be paid on the 24th of April.

The company's next dividend payment will be JP¥30.00 per share, and in the last 12 months, the company paid a total of JP¥55.00 per share. Calculating the last year's worth of payments shows that Computer Engineering & Consulting has a trailing yield of 3.0% on the current share price of JP¥1850.00. If you buy this business for its dividend, you should have an idea of whether Computer Engineering & Consulting's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Computer Engineering & Consulting

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Computer Engineering & Consulting paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Computer Engineering & Consulting generated enough free cash flow to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past year.

It's positive to see that Computer Engineering & Consulting'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 Computer Engineering & Consulting paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Computer Engineering & Consulting's earnings per share have been growing at 11% a year for the past five years. Computer Engineering & Consulting has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Computer Engineering & Consulting has lifted its dividend by approximately 19% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Has Computer Engineering & Consulting got what it takes to maintain its dividend payments? Computer Engineering & Consulting's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Computer Engineering & Consulting looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Keen to explore more data on Computer Engineering & Consulting's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.