Dividend Investors: Don't Be Too Quick To Buy KEL Corporation (TSE:6919) For Its Upcoming Dividend

It looks like KEL Corporation (TSE:6919) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase KEL's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 6th of December.

The company's upcoming dividend is JP¥40.00 a share, following on from the last 12 months, when the company distributed a total of JP¥80.00 per share to shareholders. Last year's total dividend payments show that KEL has a trailing yield of 5.0% on the current share price of JP¥1593.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for KEL

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. Last year, KEL paid out 94% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (73%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while KEL's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see how much of its profit KEL 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 KEL earnings per share are up 4.7% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, KEL has increased its dividend at approximately 13% 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.

To Sum It Up

Is KEL worth buying for its dividend? While earnings per share have been growing slowly, KEL is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in KEL despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - KEL has 3 warning signs we think you should be aware of.

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.