Income Investors Should Know That Ebara Jitsugyo Co.,Ltd. (TSE:6328) Goes Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Ebara Jitsugyo Co.,Ltd. (TSE:6328) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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 Ebara JitsugyoLtd’s shares before the 29th of June in order to receive the dividend, which the company will pay on the 4th of September.

The company’s next dividend payment will be JP¥37.50 per share, on the back of last year when the company paid a total of JP¥75.00 to shareholders. Based on the last year’s worth of payments, Ebara JitsugyoLtd stock has a trailing yield of around 3.1% on the current share price of JP¥2457.00. If you buy this business for its dividend, you should have an idea of whether Ebara JitsugyoLtd’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Ebara JitsugyoLtd is paying out an acceptable 51% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Ebara JitsugyoLtd paid out more free cash flow than it generated – 125%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.

Ebara JitsugyoLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Ebara JitsugyoLtd’s dividends were covered by the company’s reported profits, cash is somewhat more important, so it’s not great to see that the company didn’t generate enough cash to pay its dividend. Cash is king, as they say, and were Ebara JitsugyoLtd to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Ebara JitsugyoLtd

Click here to see how much of its profit Ebara JitsugyoLtd paid out over the last 12 months.

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. Fortunately for readers, Ebara JitsugyoLtd’s earnings per share have been growing at 17% a year for the past five years. Earnings have been growing at a decent rate, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Ebara JitsugyoLtd has delivered an average of 21% per year annual increase in its dividend, based on the past 10 years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Ebara JitsugyoLtd worth buying for its dividend? Earnings per share growth is a positive, and the company’s payout ratio looks normal. However, we note Ebara JitsugyoLtd paid out a much higher percentage of its free cash flow, which makes us uncomfortable. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Ebara JitsugyoLtd’s dividend merits.

So if you want to do more digging on Ebara JitsugyoLtd, you’ll find it worthwhile knowing the risks that this stock faces. Case in point: We’ve spotted 1 warning sign for Ebara JitsugyoLtd you should be aware of.

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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.