Three Days Left To Buy Kobayashi Pharmaceutical Co., Ltd. (TSE:4967) Before The Ex-Dividend Date

Readers hoping to buy Kobayashi Pharmaceutical Co., Ltd. (TSE:4967) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Kobayashi Pharmaceutical investors that purchase the stock on or after the 27th of June will not receive the dividend, which will be paid on the 9th of September.

The company's next dividend payment will be JP¥44.00 per share, on the back of last year when the company paid a total of JP¥101 to shareholders. Looking at the last 12 months of distributions, Kobayashi Pharmaceutical has a trailing yield of approximately 1.8% on its current stock price of JP¥5609.00. 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! So we need to investigate whether Kobayashi Pharmaceutical can afford its dividend, and if the dividend could grow.

See our latest analysis for Kobayashi Pharmaceutical

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 Kobayashi Pharmaceutical paying out a modest 43% of its earnings. 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. Kobayashi Pharmaceutical paid out more free cash flow than it generated - 151%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Kobayashi Pharmaceutical 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.

Kobayashi Pharmaceutical paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Kobayashi Pharmaceutical's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Kobayashi Pharmaceutical's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings have been growing somewhat, 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. Kobayashi Pharmaceutical has delivered an average of 9.2% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

From a dividend perspective, should investors buy or avoid Kobayashi Pharmaceutical? Earnings per share have been effectively flat over this time, and Kobayashi Pharmaceutical's paying out less than half its profits and 151% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Kobayashi Pharmaceutical as a potential investment, you should definitely consider some of the risks involved with Kobayashi Pharmaceutical. Our analysis shows 2 warning signs for Kobayashi Pharmaceutical and you should be aware of these before buying any 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com