Should Income Investors Look At Osaka Organic Chemical Industry Ltd. (TSE:4187) Before Its Ex-Dividend?

Osaka Organic Chemical Industry Ltd. (TSE:4187) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. This means that investors who purchase Osaka Organic Chemical Industry's shares on or after the 28th of November will not receive the dividend, which will be paid on the 28th of February.

The company's next dividend payment will be JP¥32.00 per share, on the back of last year when the company paid a total of JP¥64.00 to shareholders. Based on the last year's worth of payments, Osaka Organic Chemical Industry stock has a trailing yield of around 2.3% on the current share price of JP¥2773.00. If you buy this business for its dividend, you should have an idea of whether Osaka Organic Chemical Industry's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Osaka Organic Chemical Industry

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Osaka Organic Chemical Industry paid out more than half (55%) 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 distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Osaka Organic 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Osaka Organic Chemical Industry earnings per share are up 5.9% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Osaka Organic Chemical Industry has delivered 20% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Osaka Organic Chemical Industry? Earnings per share growth has been modest and Osaka Organic Chemical Industry paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. To summarise, Osaka Organic Chemical Industry looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Osaka Organic Chemical Industry has 2 warning signs we think you should be aware of.

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.