Sakai Chemical Industry Co., Ltd. (TSE:4078) Passed Our Checks, And It's About To Pay A JP¥65.00 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 Sakai Chemical Industry Co., Ltd. (TSE:4078) is about to go ex-dividend in just four 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Sakai Chemical Industry's shares before the 29th of September to receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥65.00 per share. Last year, in total, the company distributed JP¥130 to shareholders. Looking at the last 12 months of distributions, Sakai Chemical Industry has a trailing yield of approximately 4.5% on its current stock price of JP¥2883.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Sakai Chemical Industry paid out a comfortable 45% of its profit last year. A useful secondary check can be to evaluate whether Sakai Chemical Industry generated enough free cash flow to afford its dividend. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Sakai Chemical Industry'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.

See our latest analysis for Sakai Chemical Industry

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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Sakai Chemical Industry's earnings per share have been growing at 16% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Sakai Chemical Industry has lifted its dividend by approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

From a dividend perspective, should investors buy or avoid Sakai Chemical Industry? Sakai Chemical Industry 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. Sakai Chemical Industry looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Sakai Chemical Industry for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Sakai Chemical Industry and understanding them should be part of your investment process.

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.