Income Investors Should Know That Teijin Limited (TSE:3401) Goes Ex-Dividend Soon

Readers hoping to buy Teijin Limited (TSE:3401) 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. Meaning, you will need to purchase Teijin's shares before the 27th of September to receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥15.00 per share, on the back of last year when the company paid a total of JP¥30.00 to shareholders. Last year's total dividend payments show that Teijin has a trailing yield of 2.1% on the current share price of JP¥1409.50. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Teijin

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Teijin's payout ratio is modest, at just 43% of profit. 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 distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Teijin'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Teijin's 21% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Teijin has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Has Teijin got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Teijin from a dividend perspective.

On that note, you'll want to research what risks Teijin is facing. For instance, we've identified 4 warning signs for Teijin (2 can't be ignored) you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.