Is It Worth Considering Bando Chemical Industries, Ltd. (TSE:5195) For Its Upcoming Dividend?

Bando Chemical Industries, Ltd. (TSE:5195) is about to trade 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Bando Chemical Industries' shares before the 28th of March to receive the dividend, which will be paid on the 26th of June.

The company's upcoming dividend is JP¥38.00 a share, following on from the last 12 months, when the company distributed a total of JP¥76.00 per share to shareholders. Looking at the last 12 months of distributions, Bando Chemical Industries has a trailing yield of approximately 4.3% on its current stock price of JP¥1775.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Bando Chemical Industries is paying out an acceptable 60% of its profit, a common payout level among most companies. 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. Thankfully its dividend payments took up just 35% 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.

See our latest analysis for Bando Chemical Industries

Click here to see how much of its profit Bando Chemical Industries 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Bando Chemical Industries's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bando Chemical Industries has delivered 14% dividend growth per year on average over the past 10 years.

Final Takeaway

Is Bando Chemical Industries an attractive dividend stock, or better left on the shelf? It's unfortunate that earnings per share have not grown, and we'd note that Bando Chemical Industries is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. In summary, while it has some positive characteristics, we're not inclined to race out and buy Bando Chemical Industries today.

So while Bando Chemical Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Bando Chemical Industries you should know about.

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.