Tokyo Electron Device Limited (TSE:2760) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy Tokyo Electron Device Limited (TSE:2760) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. This means that investors who purchase Tokyo Electron Device's shares on or after the 29th of September will not receive the dividend, which will be paid on the 1st of December.

The company's next dividend payment will be JP¥32.00 per share, and in the last 12 months, the company paid a total of JP¥96.00 per share. Last year's total dividend payments show that Tokyo Electron Device has a trailing yield of 3.2% on the current share price of JP¥3040.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. That's why it's good to see Tokyo Electron Device paying out a modest 47% of its earnings. A useful secondary check can be to evaluate whether Tokyo Electron Device 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 Tokyo Electron Device'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 Tokyo Electron Device

Click here to see how much of its profit Tokyo Electron Device 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Tokyo Electron Device has grown its earnings rapidly, up 28% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Tokyo Electron Device has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Tokyo Electron Device an attractive dividend stock, or better left on the shelf? Tokyo Electron Device has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Tokyo Electron Device looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Tokyo Electron Device is facing. Our analysis shows 2 warning signs for Tokyo Electron Device and you should be aware of these before buying any 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.