Ricoh Company (TSE:7752) Could Be A Buy For Its Upcoming Dividend

It looks like Ricoh Company, Ltd. (TSE:7752) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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 Ricoh Company's shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 26th of June.

The company's upcoming dividend is JP¥18.00 a share, following on from the last 12 months, when the company distributed a total of JP¥36.00 per share to shareholders. Looking at the last 12 months of distributions, Ricoh Company has a trailing yield of approximately 2.6% on its current stock price of JP¥1368.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Ricoh Company can afford its dividend, and if the dividend could grow.

See our latest analysis for Ricoh Company

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. Ricoh Company paid out a comfortable 37% 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. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Ricoh 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?

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Ricoh Company's earnings have been skyrocketing, up 32% per annum for the past five years.

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, Ricoh Company has lifted its dividend by approximately 0.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Ricoh Company is keeping back more of its profits to grow the business.

Final Takeaway

Has Ricoh Company got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Ricoh Company paid out less than half its earnings and a bit over half its free cash flow. Ricoh Company looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Ricoh Company looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 2 warning signs for Ricoh Company that we recommend you consider before investing in the business.

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.