Togami Electric Mfg (TSE:6643) Could Be A Buy For Its Upcoming Dividend
It looks like Togami Electric Mfg. Co., Ltd. (TSE:6643) is about to go ex-dividend in the next 4 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. 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. Thus, you can purchase Togami Electric Mfg's shares before the 29th of September in order to receive the dividend, which the company will pay on the 2nd of December.
The company's next dividend payment will be JP¥70.00 per share, and in the last 12 months, the company paid a total of JP¥130 per share. Based on the last year's worth of payments, Togami Electric Mfg stock has a trailing yield of around 2.3% on the current share price of JP¥5670.00. 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.
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. Togami Electric Mfg paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected 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 47% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Togami Electric Mfg'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.
See our latest analysis for Togami Electric Mfg
Click here to see how much of its profit Togami Electric Mfg paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Togami Electric Mfg's earnings per share have risen 18% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. 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. Togami Electric Mfg has delivered an average of 6.4% 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
Should investors buy Togami Electric Mfg for the upcoming dividend? Togami Electric 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. Togami Electric Mfg looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Togami Electric Mfg has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Togami Electric Mfg and understanding them should be part of your investment process.
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.