Why You Might Be Interested In Asahi Kogyosha Co., Ltd. (TSE:1975) For Its Upcoming Dividend

Readers hoping to buy Asahi Kogyosha Co., Ltd. (TSE:1975) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Asahi Kogyosha's shares on or after the 27th of September will not receive the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be JP¥25.00 per share, on the back of last year when the company paid a total of JP¥50.00 to shareholders. Based on the last year's worth of payments, Asahi Kogyosha has a trailing yield of 3.8% on the current stock price of JP¥1306.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Asahi Kogyosha can afford its dividend, and if the dividend could grow.

View our latest analysis for Asahi Kogyosha

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. Fortunately Asahi Kogyosha's payout ratio is modest, at just 26% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 71% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Asahi Kogyosha'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 Asahi Kogyosha 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. With that in mind, we're encouraged by the steady growth at Asahi Kogyosha, with earnings per share up 8.2% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Asahi Kogyosha has lifted its dividend by approximately 10% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Asahi Kogyosha worth buying for its dividend? Earnings per share have been growing at a steady rate, and Asahi Kogyosha paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it's hard to get excited about Asahi Kogyosha from a dividend perspective.

In light of that, while Asahi Kogyosha has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Asahi Kogyosha that you should be aware of before investing in their shares.

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.