Be Sure To Check Out Gun Ei Chemical Industry Co., Ltd. (TSE:4229) Before It Goes Ex-Dividend

Readers hoping to buy Gun Ei Chemical Industry Co., Ltd. (TSE:4229) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Gun Ei Chemical Industry's shares before the 28th of March in order to be eligible for the dividend, which will be paid on the 24th of June.

The company's next dividend payment will be JP¥50.00 per share, on the back of last year when the company paid a total of JP¥105 to shareholders. Based on the last year's worth of payments, Gun Ei Chemical Industry has a trailing yield of 3.6% on the current stock price of JP¥2936.00. If you buy this business for its dividend, you should have an idea of whether Gun Ei Chemical Industry's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Gun Ei Chemical Industry paid out a comfortable 44% of its profit last year. A useful secondary check can be to evaluate whether Gun Ei Chemical Industry generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

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.

See our latest analysis for Gun Ei Chemical Industry

Click here to see how much of its profit Gun Ei Chemical Industry 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. 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 Gun Ei Chemical Industry earnings per share are up 7.2% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Gun Ei Chemical Industry has lifted its dividend by approximately 5.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Gun Ei Chemical Industry got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Gun Ei Chemical Industry is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Gun Ei Chemical Industry is halfway there. Overall we think this is an attractive combination and worthy of further research.

Curious about whether Gun Ei Chemical Industry has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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.