TOTO LTD. (TSE:5332) Will Pay A JP¥50.00 Dividend In Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TOTO LTD. (TSE:5332) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days 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 can take two business days or more to settle. In other words, investors can purchase TOTO's shares before the 28th of March in order to be eligible for the dividend, which will be paid on the 4th of June.

The company's next dividend payment will be JP¥50.00 per share, and in the last 12 months, the company paid a total of JP¥100.00 per share. Calculating the last year's worth of payments shows that TOTO has a trailing yield of 2.5% on the current share price of JP¥4063.00. 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 check whether the dividend payments are covered, and if earnings are growing.

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. TOTO paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It paid out 78% 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 positive to see that TOTO'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 TOTO

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see TOTO earnings per share are up 7.7% per annum 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. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, TOTO has lifted its dividend by approximately 6.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is TOTO an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and TOTO paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

In light of that, while TOTO has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for TOTO that we recommend you consider before investing in the business.

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.