Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Miyaji Engineering Group,Inc. (TSE:3431) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Miyaji Engineering GroupInc's shares before the 29th of September to receive the dividend, which will be paid on the 2nd of December.
The company's next dividend payment will be JP¥27.00 per share, and in the last 12 months, the company paid a total of JP¥75.00 per share. Last year's total dividend payments show that Miyaji Engineering GroupInc has a trailing yield of 4.9% on the current share price of JP¥1545.00. If you buy this business for its dividend, you should have an idea of whether Miyaji Engineering GroupInc's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Last year Miyaji Engineering GroupInc paid out 93% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Miyaji Engineering GroupInc generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Miyaji Engineering GroupInc's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
See our latest analysis for Miyaji Engineering GroupInc
Click here to see how much of its profit Miyaji Engineering GroupInc paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Miyaji Engineering GroupInc's earnings per share have fallen at approximately 5.7% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Miyaji Engineering GroupInc has increased its dividend at approximately 31% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Miyaji Engineering GroupInc is already paying out 93% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is Miyaji Engineering GroupInc an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 93% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Miyaji Engineering GroupInc as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 1 warning sign for Miyaji Engineering GroupInc you should know about.
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.