We Wouldn't Be Too Quick To Buy Daiichi Kigenso Kagaku Kogyo Co., Ltd. (TSE:4082) Before It Goes Ex-Dividend

Daiichi Kigenso Kagaku Kogyo Co., Ltd. (TSE:4082) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Daiichi Kigenso Kagaku Kogyo's shares before the 29th of September in order to receive the dividend, which the company will pay on the 2nd of December.

The company's next dividend payment will be JP¥14.00 per share. Last year, in total, the company distributed JP¥28.00 to shareholders. Looking at the last 12 months of distributions, Daiichi Kigenso Kagaku Kogyo has a trailing yield of approximately 3.9% on its current stock price of JP¥721.00. If you buy this business for its dividend, you should have an idea of whether Daiichi Kigenso Kagaku Kogyo's dividend is reliable and sustainable. As a result, readers should always check whether Daiichi Kigenso Kagaku Kogyo has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Daiichi Kigenso Kagaku Kogyo distributed an unsustainably high 162% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Daiichi Kigenso Kagaku Kogyo fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Check out our latest analysis for Daiichi Kigenso Kagaku Kogyo

Click here to see how much of its profit Daiichi Kigenso Kagaku Kogyo paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Daiichi Kigenso Kagaku Kogyo's earnings per share have plummeted approximately 30% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Daiichi Kigenso Kagaku Kogyo has increased its dividend at approximately 17% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Daiichi Kigenso Kagaku Kogyo is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

From a dividend perspective, should investors buy or avoid Daiichi Kigenso Kagaku Kogyo? It's not a great combination to see a company with earnings in decline and paying out 162% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Daiichi Kigenso Kagaku Kogyo's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Daiichi Kigenso Kagaku Kogyo has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Daiichi Kigenso Kagaku Kogyo as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 3 warning signs for Daiichi Kigenso Kagaku Kogyo you should know about.

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.