Aichi Tokei Denki Co., Ltd. (TSE:7723) Pays A JP¥35.00 Dividend In Just Three Days

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 Aichi Tokei Denki Co., Ltd. (TSE:7723) is about to go ex-dividend in just three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Aichi Tokei Denki's shares before the 27th of September in order to receive the dividend, which the company will pay on the 27th of November.

The company's next dividend payment will be JP¥35.00 per share, and in the last 12 months, the company paid a total of JP¥70.00 per share. Calculating the last year's worth of payments shows that Aichi Tokei Denki has a trailing yield of 3.5% on the current share price of JP¥2029.00. If you buy this business for its dividend, you should have an idea of whether Aichi Tokei Denki's dividend is reliable and sustainable. As a result, readers should always check whether Aichi Tokei Denki has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Aichi Tokei Denki

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. Aichi Tokei Denki paid out a comfortable 33% of its profit last year. A useful secondary check can be to evaluate whether Aichi Tokei Denki generated enough free cash flow to afford its dividend. Over the past year it paid out 196% of its free cash flow as dividends, which is uncomfortably 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.

Aichi Tokei Denki does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Aichi Tokei Denki's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Aichi Tokei Denki to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Aichi Tokei Denki paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Aichi Tokei Denki's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, Aichi Tokei Denki has lifted its dividend by approximately 8.8% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Aichi Tokei Denki? Earnings per share have been effectively flat over this time, and Aichi Tokei Denki's paying out less than half its profits and 196% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. In summary, while it has some positive characteristics, we're not inclined to race out and buy Aichi Tokei Denki today.

With that being said, if dividends aren't your biggest concern with Aichi Tokei Denki, you should know about the other risks facing this business. Every company has risks, and we've spotted 1 warning sign for Aichi Tokei Denki you should know about.

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.