Why It Might Not Make Sense To Buy ASIRO Inc. (TSE:7378) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ASIRO Inc. (TSE:7378) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, ASIRO investors that purchase the stock on or after the 30th of October will not receive the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is JP¥22.84 a share, following on from the last 12 months, when the company distributed a total of JP¥21.43 per share to shareholders. Based on the last year's worth of payments, ASIRO has a trailing yield of 2.1% on the current stock price of JP¥1013.00. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for ASIRO

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. ASIRO paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If ASIRO didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 20% of its cash flow last year.

Click here to see how much of its profit ASIRO paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. ASIRO reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

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, two years ago, ASIRO has lifted its dividend by approximately 31% a year on average.

Get our latest analysis on ASIRO's balance sheet health here.

To Sum It Up

From a dividend perspective, should investors buy or avoid ASIRO? It's hard to get used to ASIRO paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of ASIRO.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with ASIRO. For example, ASIRO has 3 warning signs (and 1 which shouldn't be ignored) we think 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.