We Wouldn't Be Too Quick To Buy Daio Paper Corporation (TSE:3880) Before It Goes Ex-Dividend

Readers hoping to buy Daio Paper Corporation (TSE:3880) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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, Daio Paper investors that purchase the stock on or after the 28th of March will not receive the dividend, which will be paid on the 27th of June.

The company's next dividend payment will be JP¥7.00 per share. Last year, in total, the company distributed JP¥14.00 to shareholders. Based on the last year's worth of payments, Daio Paper has a trailing yield of 1.6% on the current stock price of JP¥875.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Daio Paper can afford its dividend, and if the dividend could grow.

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. Daio Paper 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 Daio Paper 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. The good news is it paid out just 8.2% of its free cash flow in the last year.

View our latest analysis for Daio Paper

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 earnings fall far enough, the company could be forced to cut its dividend. Daio Paper was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Daio Paper has lifted its dividend by approximately 5.1% a year on average.

We update our analysis on Daio Paper every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Daio Paper? It's hard to get used to Daio Paper paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Daio Paper has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Daio Paper and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Daio Paper and you should be aware of this before buying any shares.

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.