Only Three Days Left To Cash In On Cosmo Bio CompanyLimited's (TSE:3386) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Cosmo Bio Company,Limited (TSE:3386) is about to trade ex-dividend in the next 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Cosmo Bio CompanyLimited's shares on or after the 27th of December, you won't be eligible to receive the dividend, when it is paid on the 27th of March.

The company's next dividend payment will be JP¥36.00 per share. Last year, in total, the company distributed JP¥60.00 to shareholders. Calculating the last year's worth of payments shows that Cosmo Bio CompanyLimited has a trailing yield of 5.2% on the current share price of JP¥1146.00. If you buy this business for its dividend, you should have an idea of whether Cosmo Bio CompanyLimited's dividend is reliable and sustainable. So we need to investigate whether Cosmo Bio CompanyLimited can afford its dividend, and if the dividend could grow.

View our latest analysis for Cosmo Bio CompanyLimited

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 Cosmo Bio CompanyLimited paying out a modest 48% of its earnings. A useful secondary check can be to evaluate whether Cosmo Bio CompanyLimited generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 298% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Cosmo Bio CompanyLimited 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.

Cosmo Bio CompanyLimited paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Cosmo Bio CompanyLimited to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

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. With that in mind, we're encouraged by the steady growth at Cosmo Bio CompanyLimited, with earnings per share up 7.7% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, Cosmo Bio CompanyLimited has lifted its dividend by approximately 12% 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.

Final Takeaway

Should investors buy Cosmo Bio CompanyLimited for the upcoming dividend? Cosmo Bio CompanyLimited delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 298% of its cash flow over the last year, which is a mediocre outcome. In summary, it's hard to get excited about Cosmo Bio CompanyLimited from a dividend perspective.

If you're not too concerned about Cosmo Bio CompanyLimited's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. We've identified 3 warning signs with Cosmo Bio CompanyLimited (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

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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.