Be Sure To Check Out Toho Acetylene Co., Ltd. (TSE:4093) Before It Goes Ex-Dividend

Toho Acetylene Co., Ltd. (TSE:4093) is about to trade ex-dividend in the next two 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. 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. Accordingly, Toho Acetylene investors that purchase the stock on or after the 28th of March will not receive the dividend, which will be paid on the 5th of June.

The company's next dividend payment will be JP¥8.00 per share, on the back of last year when the company paid a total of JP¥13.00 to shareholders. Based on the last year's worth of payments, Toho Acetylene stock has a trailing yield of around 3.3% on the current share price of JP¥398.00. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Toho Acetylene

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Toho Acetylene's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether Toho Acetylene 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 Toho Acetylene'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 how much of its profit Toho Acetylene paid out over the last 12 months.

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. This is why it's a relief to see Toho Acetylene earnings per share are up 2.6% per annum over the last five years. Recent growth has not been impressive. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Toho Acetylene has delivered an average of 21% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Toho Acetylene for the upcoming dividend? Earnings per share have been growing moderately, and Toho Acetylene is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Toho Acetylene is being conservative with its dividend payouts and could still perform reasonably over the long run. Toho Acetylene looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Toho Acetylene for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Toho Acetylene and you should be aware of these before buying any shares.

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.