Mitsubishi Steel Mfg. Co., Ltd. (TSE:5632) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Mitsubishi Steel Mfg's shares on or after the 29th of September will not receive the dividend, which will be paid on the 10th of December.
The company's next dividend payment will be JP¥52.00 per share. Last year, in total, the company distributed JP¥104 to shareholders. Based on the last year's worth of payments, Mitsubishi Steel Mfg has a trailing yield of 4.0% on the current stock price of JP¥2593.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Mitsubishi Steel Mfg's payout ratio is modest, at just 31% of profit. A useful secondary check can be to evaluate whether Mitsubishi Steel Mfg generated enough free cash flow to afford its dividend. The good news is it paid out just 18% of its free cash flow in the last year.
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 Mitsubishi Steel Mfg
Click here to see how much of its profit Mitsubishi Steel Mfg 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. Fortunately for readers, Mitsubishi Steel Mfg's earnings per share have been growing at 13% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Mitsubishi Steel Mfg has increased its dividend at approximately 5.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Mitsubishi Steel Mfg is keeping back more of its profits to grow the business.
The Bottom Line
Has Mitsubishi Steel Mfg got what it takes to maintain its dividend payments? Mitsubishi Steel Mfg has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Mitsubishi Steel Mfg for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Mitsubishi Steel Mfg that you should be aware of before investing in their shares.
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.