Asahi Diamond Industrial Co., Ltd. (TSE:6140) Goes Ex-Dividend Soon

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Asahi Diamond Industrial Co., Ltd. (TSE:6140) is about to go ex-dividend in just 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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 Asahi Diamond Industrial's shares before the 29th of September to receive the dividend, which will be paid on the 2nd of December.

The company's upcoming dividend is JP¥15.00 a share, following on from the last 12 months, when the company distributed a total of JP¥30.00 per share to shareholders. Looking at the last 12 months of distributions, Asahi Diamond Industrial has a trailing yield of approximately 3.4% on its current stock price of JP¥884.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Asahi Diamond Industrial paid out 61% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 203% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Asahi Diamond Industrial intends to continue funding this dividend, or if it could be forced to cut the payment.

Asahi Diamond Industrial does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Asahi Diamond Industrial's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Asahi Diamond Industrial's ability to maintain its dividend.

Check out our latest analysis for Asahi Diamond Industrial

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Asahi Diamond Industrial's earnings have been skyrocketing, up 31% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Asahi Diamond Industrial's dividend payments per share have declined at 1.8% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Should investors buy Asahi Diamond Industrial for the upcoming dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 203% of its cashflow, which is uncomfortably high. To summarise, Asahi Diamond Industrial looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So if you want to do more digging on Asahi Diamond Industrial, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 2 warning signs for Asahi Diamond Industrial you should be aware of.

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.