Broadmedia (TSE:4347) Could Be A Buy For Its Upcoming Dividend

It looks like Broadmedia Corporation (TSE:4347) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, 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 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 Broadmedia's shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 1st of July.

The company's next dividend payment will be JP¥33.00 per share. Last year, in total, the company distributed JP¥33.00 to shareholders. Calculating the last year's worth of payments shows that Broadmedia has a trailing yield of 2.6% on the current share price of JP¥1253.00. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Broadmedia

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. Broadmedia is paying out just 18% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Broadmedia'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 how much of its profit Broadmedia 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Broadmedia has grown its earnings rapidly, up 93% a year for the past five years. Broadmedia looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Broadmedia has lifted its dividend by approximately 1.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Broadmedia is keeping back more of its profits to grow the business.

To Sum It Up

Is Broadmedia an attractive dividend stock, or better left on the shelf? It's great that Broadmedia is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

So while Broadmedia looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 3 warning signs for Broadmedia you should be aware of.

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.