Nasdaq
華爾街日報Power Solutions, Ltd. (TSE:4450) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
It looks like Power Solutions, Ltd. (TSE:4450) is about to go ex-dividend in the next 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Power Solutions' shares before the 29th of December in order to be eligible for the dividend, which will be paid on the 27th of March.
The company's upcoming dividend is JP¥12.50 a share, following on from the last 12 months, when the company distributed a total of JP¥25.00 per share to shareholders. Based on the last year's worth of payments, Power Solutions has a trailing yield of 1.2% on the current stock price of JP¥2081.00. If you buy this business for its dividend, you should have an idea of whether Power Solutions's dividend is reliable and sustainable. 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. Power Solutions has a low and conservative payout ratio of just 16% of its income after tax. 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. Luckily it paid out just 4.1% of its free cash flow last year.
It's positive to see that Power Solutions'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.
View our latest analysis for Power Solutions
Click here to see how much of its profit Power Solutions 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Power Solutions, with earnings per share up 9.0% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
Given that Power Solutions has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Has Power Solutions got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Power Solutions is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Power Solutions is halfway there. There's a lot to like about Power Solutions, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for Power Solutions and you should be aware of this 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.