Is It Worth Considering Mitachi Co., Ltd. (TSE:3321) For Its Upcoming Dividend?

Mitachi Co., Ltd. (TSE:3321) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day 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. 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. Therefore, if you purchase Mitachi's shares on or after the 28th of November, you won't be eligible to receive the dividend, when it is paid on the 10th of February.

The company's next dividend payment will be JP¥25.00 per share, and in the last 12 months, the company paid a total of JP¥50.00 per share. Last year's total dividend payments show that Mitachi has a trailing yield of 4.4% on the current share price of JP¥1130.00. If you buy this business for its dividend, you should have an idea of whether Mitachi's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Mitachi

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. Mitachi paid out a comfortable 31% of its profit last year. 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. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Mitachi'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 Mitachi 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Mitachi earnings per share are up 3.2% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mitachi has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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

Is Mitachi an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and Mitachi paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Mitachi has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Mitachi and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.