Why You Might Be Interested In HPC SYSTEMS Inc. (TSE:6597) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see HPC SYSTEMS Inc. (TSE:6597) is about to trade ex-dividend in the next 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. 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. In other words, investors can purchase HPC SYSTEMS' shares before the 27th of June in order to be eligible for the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be JP¥28.00 per share, on the back of last year when the company paid a total of JP¥26.00 to shareholders. Looking at the last 12 months of distributions, HPC SYSTEMS has a trailing yield of approximately 1.2% on its current stock price of JP¥2217.00. 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! We need to see whether the dividend is covered by earnings and if it's growing.

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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 HPC SYSTEMS's payout ratio is modest, at just 27% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that HPC SYSTEMS'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.

Check out our latest analysis for HPC SYSTEMS

Click here to see how much of its profit HPC SYSTEMS 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. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. HPC SYSTEMS has delivered an average of 2.0% per year annual increase in its dividend, based on the past two years of dividend payments.

To Sum It Up

Should investors buy HPC SYSTEMS for the upcoming dividend? Earnings per share growth has been growing somewhat, and HPC SYSTEMS is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 HPC SYSTEMS is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while HPC SYSTEMS has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with HPC SYSTEMS (at least 1 which is significant), and understanding them should be part of your investment process.

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.