Don't Race Out To Buy Daiichi Kigenso Kagaku Kogyo Co., Ltd. (TSE:4082) Just Because It's Going Ex-Dividend

It looks like Daiichi Kigenso Kagaku Kogyo Co., Ltd. (TSE:4082) is about to go ex-dividend in the next two 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 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. Thus, you can purchase Daiichi Kigenso Kagaku Kogyo's shares before the 28th of March in order to receive the dividend, which the company will pay on the 24th of June.

The company's next dividend payment will be JP¥14.00 per share. Last year, in total, the company distributed JP¥26.00 to shareholders. Based on the last year's worth of payments, Daiichi Kigenso Kagaku Kogyo has a trailing yield of 2.7% on the current stock price of JP¥965.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Daiichi Kigenso Kagaku Kogyo

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. Daiichi Kigenso Kagaku Kogyo paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 81% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Daiichi Kigenso Kagaku Kogyo'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?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Daiichi Kigenso Kagaku Kogyo's earnings per share have fallen at approximately 10% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Daiichi Kigenso Kagaku Kogyo has delivered 16% dividend growth per year on average over the past 10 years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Has Daiichi Kigenso Kagaku Kogyo got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least Daiichi Kigenso Kagaku Kogyo's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Daiichi Kigenso Kagaku Kogyo. In terms of investment risks, we've identified 3 warning signs with Daiichi Kigenso Kagaku Kogyo and understanding them should be part of your investment process.

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.