Here's What We Like About Toyo Tanso's (TSE:5310) Upcoming Dividend

Toyo Tanso Co., Ltd. (TSE:5310) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Toyo Tanso investors that purchase the stock on or after the 27th of December will not receive the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be JP¥120.00 per share, on the back of last year when the company paid a total of JP¥120 to shareholders. Calculating the last year's worth of payments shows that Toyo Tanso has a trailing yield of 2.8% on the current share price of JP¥4215.00. 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 Toyo Tanso can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Toyo Tanso

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. That's why it's good to see Toyo Tanso paying out a modest 26% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 88% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Toyo Tanso's earnings per share have been growing at 13% a year for the past five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Toyo Tanso has increased its dividend at approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Toyo Tanso an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Toyo Tanso paid out less than half its earnings and a bit over half its free cash flow. Toyo Tanso looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Toyo Tanso is facing. For example, we've found 2 warning signs for Toyo Tanso that we recommend you consider before investing in the business.

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.