Satori Electric Co., Ltd. (TSE:7420) Passed Our Checks, And It's About To Pay A JP¥46.00 Dividend

It looks like Satori Electric Co., Ltd. (TSE:7420) is about to go ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase Satori Electric's shares before the 29th of May in order to be eligible for the dividend, which will be paid on the 5th of August.

The company's next dividend payment will be JP¥46.00 per share, on the back of last year when the company paid a total of JP¥86.00 to shareholders. Based on the last year's worth of payments, Satori Electric stock has a trailing yield of around 5.2% on the current share price of JP¥1648.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've discovered 1 warning sign about Satori Electric. View them for free.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Satori Electric paid out 67% of its earnings to investors last year, a normal payout level for most businesses. 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. The good news is it paid out just 25% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Satori Electric

Click here to see how much of its profit Satori Electric 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Satori Electric's earnings have been skyrocketing, up 49% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Satori Electric could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Satori Electric has lifted its dividend by approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Satori Electric worth buying for its dividend? We like Satori Electric's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Satori Electric has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Satori Electric 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.