Tera Technology (TSE:483A) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy Tera Technology, Inc. (TSE:483A) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Tera Technology's shares before the 29th of September in order to receive the dividend, which the company will pay on the .
The company's upcoming dividend is JP¥45.00 a share, following on from the last 12 months, when the company distributed a total of JP¥90.00 per share to shareholders. Looking at the last 12 months of distributions, Tera Technology has a trailing yield of approximately 4.2% on its current stock price of JP¥2156.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. Fortunately Tera Technology's payout ratio is modest, at just 42% of profit. 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. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.
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 Tera Technology
Click here to see how much of its profit Tera Technology paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. To our modest chagrin, Tera Technology earnings per share have been effectively flat over the past year. The best dividend stocks all grow their earnings per share over the long run, but it is hard to draw strong conclusions from any one year period. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.
Given that Tera Technology has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Final Takeaway
Should investors buy Tera Technology for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Tera Technology 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 strong earnings per share growth with a low payout ratio, and Tera Technology is halfway there. There's a lot to like about Tera Technology, and we would prioritise taking a closer look at it.
In light of that, while Tera Technology has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Tera Technology and you should be aware of this before buying any shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.