Don't Race Out To Buy Sanyo Chemical Industries, Ltd. (TSE:4471) Just Because It's Going Ex-Dividend

Sanyo Chemical Industries, Ltd. (TSE:4471) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Sanyo Chemical Industries' shares before the 27th of September to receive the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be JP¥85.00 per share. Last year, in total, the company distributed JP¥170 to shareholders. Based on the last year's worth of payments, Sanyo Chemical Industries stock has a trailing yield of around 4.1% on the current share price of JP¥4140.00. 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! So we need to investigate whether Sanyo Chemical Industries can afford its dividend, and if the dividend could grow.

View our latest analysis for Sanyo Chemical Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sanyo Chemical Industries reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Sanyo Chemical Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Sanyo Chemical Industries has increased its dividend at approximately 8.5% a year on average.

We update our analysis on Sanyo Chemical Industries every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Sanyo Chemical Industries worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Sanyo Chemical Industries don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for Sanyo Chemical Industries you should know about.

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.