It Might Not Be A Great Idea To Buy Hamamatsu Photonics K.K. (TSE:6965) For Its Next 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 Hamamatsu Photonics K.K. (TSE:6965) is about to go ex-dividend in just 3 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 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. In other words, investors can purchase Hamamatsu Photonics K.K's shares before the 28th of March in order to be eligible for the dividend, which will be paid on the 4th of June.

The company's next dividend payment will be JP¥19.00 per share, and in the last 12 months, the company paid a total of JP¥38.00 per share. Last year's total dividend payments show that Hamamatsu Photonics K.K has a trailing yield of 2.4% on the current share price of JP¥1567.50. 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! As a result, readers should always check whether Hamamatsu Photonics K.K has been able to grow its dividends, or if the dividend might be cut.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hamamatsu Photonics K.K paid out 57% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Hamamatsu Photonics K.K generated enough free cash flow to afford its dividend. Hamamatsu Photonics K.K paid out more free cash flow than it generated - 138%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Hamamatsu Photonics K.K paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Hamamatsu Photonics K.K to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Hamamatsu Photonics K.K

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Hamamatsu Photonics K.K's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Hamamatsu Photonics K.K has increased its dividend at approximately 9.7% a year on average.

To Sum It Up

Has Hamamatsu Photonics K.K got what it takes to maintain its dividend payments? In addition to earnings being flat, Hamamatsu Photonics K.K is paying out a reasonable percentage of its earnings as profits. However, the dividend was not well covered by free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Hamamatsu Photonics K.K.

With that in mind though, if the poor dividend characteristics of Hamamatsu Photonics K.K don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for Hamamatsu Photonics K.K and you should be aware of them before buying any 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.