Why You Might Be Interested In Chuetsu Pulp & Paper Co., Ltd. (TSE:3877) For Its Upcoming Dividend

Chuetsu Pulp & Paper Co., Ltd. (TSE:3877) 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. In other words, investors can purchase Chuetsu Pulp & Paper'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 upcoming dividend is JP¥30.00 a share, following on from the last 12 months, when the company distributed a total of JP¥60.00 per share to shareholders. Last year's total dividend payments show that Chuetsu Pulp & Paper has a trailing yield of 4.5% on the current share price of JP¥1319.00. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Chuetsu Pulp & Paper

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Chuetsu Pulp & Paper paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 14% of its free cash flow last year.

It's positive to see that Chuetsu Pulp & Paper'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 Chuetsu Pulp & Paper paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Chuetsu Pulp & Paper has grown its earnings rapidly, up 35% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Chuetsu Pulp & Paper looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Chuetsu Pulp & Paper has lifted its dividend by approximately 4.1% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Chuetsu Pulp & Paper is keeping back more of its profits to grow the business.

Final Takeaway

Is Chuetsu Pulp & Paper an attractive dividend stock, or better left on the shelf? Chuetsu Pulp & Paper has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Chuetsu Pulp & Paper has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 3 warning signs for Chuetsu Pulp & Paper you should be aware of.

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.