Read This Before Considering Di-Nikko Engineering Co., Ltd. (TSE:6635) For Its Upcoming JP¥8.00 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 Di-Nikko Engineering Co., Ltd. (TSE:6635) is about to go ex-dividend in just three days. Typically, the ex-dividend date is two business days 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 as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Di-Nikko Engineering's shares on or after the 27th of June will not receive the dividend, which will be paid on the 1st of September.

The company's next dividend payment will be JP¥8.00 per share, and in the last 12 months, the company paid a total of JP¥16.00 per share. Based on the last year's worth of payments, Di-Nikko Engineering has a trailing yield of 3.4% on the current stock price of JP¥476.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Di-Nikko Engineering has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Di-Nikko Engineering paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Di-Nikko Engineering generated enough free cash flow to afford its dividend. The good news is it paid out just 6.6% of its free cash flow in the last year.

It's positive to see that Di-Nikko Engineering'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 Di-Nikko Engineering

Click here to see how much of its profit Di-Nikko Engineering paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Di-Nikko Engineering's earnings per share have fallen at approximately 5.8% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Di-Nikko Engineering has increased its dividend at approximately 4.8% a year on average.

To Sum It Up

Is Di-Nikko Engineering an attractive dividend stock, or better left on the shelf? Di-Nikko Engineering has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

While it's tempting to invest in Di-Nikko Engineering for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 4 warning signs for Di-Nikko Engineering (1 doesn't sit too well with us!) that you ought to be aware of before buying the 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.