There's A Lot To Like About Toagosei's (TSE:4045) Upcoming JP¥29.00 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Toagosei Co., Ltd. (TSE:4045) is about to go ex-dividend in just 3 days. The ex-dividend date occurs one day 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 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, Toagosei investors that purchase the stock on or after the 27th of June will not receive the dividend, which will be paid on the 6th of September.

The company's next dividend payment will be JP¥29.00 per share, and in the last 12 months, the company paid a total of JP¥58.00 per share. Based on the last year's worth of payments, Toagosei stock has a trailing yield of around 3.8% on the current share price of JP¥1516.00. If you buy this business for its dividend, you should have an idea of whether Toagosei's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Toagosei

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. Toagosei paid out a comfortable 49% of its profit last year. A useful secondary check can be to evaluate whether Toagosei generated enough free cash flow to afford its dividend. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Toagosei'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?

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. With that in mind, we're encouraged by the steady growth at Toagosei, with earnings per share up 2.9% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Toagosei has delivered 11% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Toagosei an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Toagosei is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Toagosei is halfway there. There's a lot to like about Toagosei, and we would prioritise taking a closer look at it.

Curious what other investors think of Toagosei? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.

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