Should You Buy Dai-Dan Co., Ltd. (TSE:1980) For Its Upcoming Dividend?

Readers hoping to buy Dai-Dan Co., Ltd. (TSE:1980) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a 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. Thus, you can purchase Dai-Dan's shares before the 29th of September in order to receive the dividend, which the company will pay on the 2nd of December.

The company's next dividend payment will be JP¥82.00 per share, on the back of last year when the company paid a total of JP¥165 to shareholders. Looking at the last 12 months of distributions, Dai-Dan has a trailing yield of approximately 2.7% on its current stock price of JP¥6160.00. If you buy this business for its dividend, you should have an idea of whether Dai-Dan's dividend is reliable and sustainable. As a result, readers should always check whether Dai-Dan 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. Dai-Dan paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether Dai-Dan generated enough free cash flow to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past year.

It's positive to see that Dai-Dan'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.

See our latest analysis for Dai-Dan

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Dai-Dan's earnings have been skyrocketing, up 30% per annum for the past five years. Dai-Dan is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Dai-Dan has increased its dividend at approximately 26% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Dai-Dan an attractive dividend stock, or better left on the shelf? It's great that Dai-Dan is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

So while Dai-Dan looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 3 warning signs we've spotted with Dai-Dan (including 1 which is concerning).

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.