Sansha Electric Manufacturing Co.,Ltd. (TSE:6882) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, 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 at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Sansha Electric ManufacturingLtd'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¥10.00 per share, and in the last 12 months, the company paid a total of JP¥40.00 per share. Last year's total dividend payments show that Sansha Electric ManufacturingLtd has a trailing yield of 3.4% on the current share price of JP¥1179.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sansha Electric ManufacturingLtd paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. It distributed 25% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Sansha Electric ManufacturingLtd'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.
View our latest analysis for Sansha Electric ManufacturingLtd
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Sansha Electric ManufacturingLtd, with earnings per share up 3.2% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sansha Electric ManufacturingLtd has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
From a dividend perspective, should investors buy or avoid Sansha Electric ManufacturingLtd? Earnings per share have grown modestly, and last year Sansha Electric ManufacturingLtd paid out a low percentage of its cash flow. However, its dividend payments were not well covered by profits. All things considered, we are not particularly enthused about Sansha Electric ManufacturingLtd from a dividend perspective.
So if you want to do more digging on Sansha Electric ManufacturingLtd, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 2 warning signs for Sansha Electric ManufacturingLtd and you should be aware of these before buying any shares.
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.