Should Income Investors Look At Taiho Kogyo Co., Ltd. (TSE:6470) Before Its Ex-Dividend?

Taiho Kogyo Co., Ltd. (TSE:6470) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be one business day 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. Therefore, if you purchase Taiho Kogyo's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 27th of November.

The company's upcoming dividend is JP¥10.00 a share, following on from the last 12 months, when the company distributed a total of JP¥20.00 per share to shareholders. Calculating the last year's worth of payments shows that Taiho Kogyo has a trailing yield of 3.3% on the current share price of JP¥614.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Taiho Kogyo can afford its dividend, and if the dividend could grow.

View our latest analysis for Taiho Kogyo

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. Taiho Kogyo paid out a comfortable 35% of its profit last year. 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 12% of its free cash flow last year.

It's positive to see that Taiho Kogyo'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.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Taiho Kogyo's earnings per share have fallen at approximately 9.0% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Taiho Kogyo has seen its dividend decline 3.3% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Should investors buy Taiho Kogyo for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Taiho Kogyo from a dividend perspective.

On that note, you'll want to research what risks Taiho Kogyo is facing. Case in point: We've spotted 1 warning sign for Taiho Kogyo you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.