Kawaguchi Chemical Industry Co., Ltd (TSE:4361) Will Pay A JP¥50.00 Dividend In Three Days

Kawaguchi Chemical Industry Co., Ltd (TSE:4361) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Accordingly, Kawaguchi Chemical Industry investors that purchase the stock on or after the 28th of November will not receive the dividend, which will be paid on the 26th of February.

The company's next dividend payment will be JP¥50.00 per share, and in the last 12 months, the company paid a total of JP¥50.00 per share. Looking at the last 12 months of distributions, Kawaguchi Chemical Industry has a trailing yield of approximately 3.2% on its current stock price of JP¥1558.00. If you buy this business for its dividend, you should have an idea of whether Kawaguchi Chemical Industry's dividend is reliable and sustainable. As a result, readers should always check whether Kawaguchi Chemical Industry has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Kawaguchi Chemical Industry

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kawaguchi Chemical Industry is paying out just 18% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 176% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Kawaguchi Chemical Industry paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Kawaguchi Chemical Industry to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Kawaguchi Chemical Industry paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Kawaguchi Chemical Industry's earnings per share have been growing at 15% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, Kawaguchi Chemical Industry has lifted its dividend by approximately 5.2% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Is Kawaguchi Chemical Industry an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Kawaguchi Chemical Industry's dividend merits.

In light of that, while Kawaguchi Chemical Industry has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with Kawaguchi Chemical Industry (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

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.