Dainichiseika Color & Chemicals Mfg. Co., Ltd. (TSE:4116) Passed Our Checks, And It's About To Pay A JP¥66.00 Dividend

It looks like Dainichiseika Color & Chemicals Mfg. Co., Ltd. (TSE:4116) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves 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 Dainichiseika Color & Chemicals Mfg's shares before the 27th of September to receive the dividend, which will be paid on the 9th of December.

The company's next dividend payment will be JP¥66.00 per share, and in the last 12 months, the company paid a total of JP¥132 per share. Calculating the last year's worth of payments shows that Dainichiseika Color & Chemicals Mfg has a trailing yield of 4.4% on the current share price of JP¥3025.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Dainichiseika Color & Chemicals Mfg

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Dainichiseika Color & Chemicals Mfg paid out a comfortable 38% of its profit last year. 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. Fortunately, it paid out only 32% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Dainichiseika Color & Chemicals Mfg paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Dainichiseika Color & Chemicals Mfg's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Dainichiseika Color & Chemicals Mfg has lifted its dividend by approximately 8.2% a year on average.

To Sum It Up

Has Dainichiseika Color & Chemicals Mfg got what it takes to maintain its dividend payments? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but Dainichiseika Color & Chemicals Mfg is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Dainichiseika Color & Chemicals Mfg has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Dainichiseika Color & Chemicals Mfg (1 is significant!) that deserve your attention before investing in the shares.

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.