Should You Buy OPTEX GROUP Company, Limited (TSE:6914) For Its Upcoming Dividend?

It looks like OPTEX GROUP Company, Limited (TSE:6914) is about to go ex-dividend in the next 3 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase OPTEX GROUP Company's shares before the 27th of December in order to receive the dividend, which the company will pay on the 28th of March.

The company's upcoming dividend is JP¥20.00 a share, following on from the last 12 months, when the company distributed a total of JP¥40.00 per share to shareholders. Based on the last year's worth of payments, OPTEX GROUP Company stock has a trailing yield of around 2.3% on the current share price of JP¥1714.00. 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 investigate whether OPTEX GROUP Company can afford its dividend, and if the dividend could grow.

See our latest analysis for OPTEX GROUP Company

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. OPTEX GROUP Company paid out a comfortable 28% 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. Fortunately, it paid out only 37% of its free cash flow in the past year.

It's positive to see that OPTEX GROUP Company'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. This is why it's a relief to see OPTEX GROUP Company earnings per share are up 6.5% per annum over the last five years. 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. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, OPTEX GROUP Company has lifted its dividend by approximately 10% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy OPTEX GROUP Company for the upcoming dividend? Earnings per share growth has been growing somewhat, and OPTEX GROUP Company 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. It might be nice to see earnings growing faster, but OPTEX GROUP Company is being conservative with its dividend payouts and could still perform reasonably over the long run. OPTEX GROUP Company looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while OPTEX GROUP Company looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - OPTEX GROUP Company has 2 warning signs we think you should be aware of.

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

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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.