Is It Smart To Buy Sankyo Kasei Corporation (TSE:8138) Before It Goes Ex-Dividend?

Readers hoping to buy Sankyo Kasei Corporation (TSE:8138) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Sankyo Kasei's shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥45.00 per share, and in the last 12 months, the company paid a total of JP¥90.00 per share. Based on the last year's worth of payments, Sankyo Kasei stock has a trailing yield of around 2.4% on the current share price of JP¥3815.00. If you buy this business for its dividend, you should have an idea of whether Sankyo Kasei's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Sankyo Kasei

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Sankyo Kasei paying out a modest 33% of its earnings. 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. The good news is it paid out just 11% of its free cash flow in the last year.

It's positive to see that Sankyo Kasei'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.

Click here to see how much of its profit Sankyo Kasei 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Sankyo Kasei's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Sankyo Kasei has lifted its dividend by approximately 0.6% a year on average.

The Bottom Line

Is Sankyo Kasei worth buying for its dividend? Earnings per share have been flat over this time, but we're intrigued to see that Sankyo Kasei is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Sankyo Kasei is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Sankyo Kasei for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Sankyo Kasei that you should be aware of before investing in their shares.

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.