Just Three Days Till Tokuyama Corporation (TSE:4043) Will Be Trading Ex-Dividend

Tokuyama Corporation (TSE:4043) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Tokuyama investors that purchase the stock on or after the 28th of March will not receive the dividend, which will be paid on the 26th of June.

The company's next dividend payment will be JP¥50.00 per share. Last year, in total, the company distributed JP¥100.00 to shareholders. Last year's total dividend payments show that Tokuyama has a trailing yield of 3.4% on the current share price of JP¥2926.50. If you buy this business for its dividend, you should have an idea of whether Tokuyama's dividend is reliable and sustainable. As a result, readers should always check whether Tokuyama has been able to grow its dividends, or if the dividend might be cut.

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. Fortunately Tokuyama's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether Tokuyama generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Tokuyama

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Tokuyama's earnings per share have fallen at approximately 8.5% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Tokuyama has increased its dividend at approximately 13% a year on average.

The Bottom Line

Should investors buy Tokuyama for the upcoming dividend? Tokuyama has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, Tokuyama looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Tokuyama for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Tokuyama 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.