Dividend Investors: Don't Be Too Quick To Buy Sakai Chemical Industry Co., Ltd. (TSE:4078) For Its Upcoming Dividend

It looks like Sakai Chemical Industry Co., Ltd. (TSE:4078) is about to go ex-dividend in the next four days. 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 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. In other words, investors can purchase Sakai Chemical Industry'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¥62.50 a share, following on from the last 12 months, when the company distributed a total of JP¥125 per share to shareholders. Based on the last year's worth of payments, Sakai Chemical Industry has a trailing yield of 4.7% on the current stock price of JP¥2650.00. 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 Sakai Chemical Industry can afford its dividend, and if the dividend could grow.

See our latest analysis for Sakai Chemical Industry

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sakai Chemical Industry's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see how much of its profit Sakai Chemical Industry paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Sakai Chemical Industry reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Sakai Chemical Industry has increased its dividend at approximately 12% a year on average.

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

Final Takeaway

Has Sakai Chemical Industry got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Sakai Chemical Industry and want to know more, you'll find it very useful to know what risks this stock faces. For example - Sakai Chemical Industry has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.