Don't Buy Mitsuchi Corporation (TSE:3439) For Its Next Dividend Without Doing These Checks

It looks like Mitsuchi Corporation (TSE:3439) is about to go 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 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. Thus, you can purchase Mitsuchi's shares before the 29th of December in order to receive the dividend, which the company will pay on the 16th of March.

The company's next dividend payment will be JP¥10.00 per share. Last year, in total, the company distributed JP¥20.00 to shareholders. Looking at the last 12 months of distributions, Mitsuchi has a trailing yield of approximately 3.2% on its current stock price of JP¥628.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Mitsuchi has been able to grow its dividends, or if the dividend might be cut.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Mitsuchi's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.

View our latest analysis for Mitsuchi

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Mitsuchi reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mitsuchi has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see.

Get our latest analysis on Mitsuchi's balance sheet health here.

Final Takeaway

Is Mitsuchi worth buying for its dividend? It's hard to get used to Mitsuchi paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Mitsuchi is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Mitsuchi. We've identified 3 warning signs with Mitsuchi (at least 1 which is a bit concerning), and understanding these 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.