Why It Might Not Make Sense To Buy Trend Micro Incorporated (TSE:4704) For Its Upcoming Dividend
Trend Micro Incorporated (TSE:4704) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 Trend Micro's shares before the 29th of December to receive the dividend, which will be paid on the 30th of March.
The company's next dividend payment will be JP¥160.00 per share. Last year, in total, the company distributed JP¥184 to shareholders. Looking at the last 12 months of distributions, Trend Micro has a trailing yield of approximately 2.8% on its current stock price of JP¥6674.00. If you buy this business for its dividend, you should have an idea of whether Trend Micro's dividend is reliable and sustainable. So we need to investigate whether Trend Micro can afford its dividend, and if the dividend could grow.
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. Trend Micro paid out 69% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 57% of its free cash flow as dividends, within the usual range for most companies.
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.
View our latest analysis for Trend Micro
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Trend Micro, with earnings per share up 5.7% on average over the last five years. Decent historical earnings per share growth suggests Trend Micro has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Trend Micro has increased its dividend at approximately 4.7% a year on average. 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.
The Bottom Line
Is Trend Micro an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Trend Micro paid out a bit over half of its earnings and free cash flow last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Trend Micro's dividend merits.
If you want to look further into Trend Micro, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 1 warning sign with Trend Micro and understanding them should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.