Is It Worth Considering DAIKO XTECH, Ltd. (TSE:8023) For Its Upcoming Dividend?

DAIKO XTECH, Ltd. (TSE:8023) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is two business days 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase DAIKO XTECH's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 1st of January.

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. Calculating the last year's worth of payments shows that DAIKO XTECH has a trailing yield of 3.0% on the current share price of JP¥1208.00. If you buy this business for its dividend, you should have an idea of whether DAIKO XTECH's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. That's why it's good to see DAIKO XTECH paying out a modest 30% of its earnings. A useful secondary check can be to evaluate whether DAIKO XTECH generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.

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.

See our latest analysis for DAIKO XTECH

Click here to see how much of its profit DAIKO XTECH paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by DAIKO XTECH's 5.5% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. DAIKO XTECH has delivered 36% dividend growth per year on average over the past eight years.

Final Takeaway

Has DAIKO XTECH got what it takes to maintain its dividend payments? DAIKO XTECH has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

Curious about whether DAIKO XTECH has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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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.