Why You Might Be Interested In Dai Nippon Toryo Company, Limited (TSE:4611) For Its Upcoming Dividend

Readers hoping to buy Dai Nippon Toryo Company, Limited (TSE:4611) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Dai Nippon Toryo Company's shares on or after the 28th of March will not receive the dividend, which will be paid on the 30th of June.

The company's next dividend payment will be JP¥49.00 per share, and in the last 12 months, the company paid a total of JP¥49.00 per share. Based on the last year's worth of payments, Dai Nippon Toryo Company stock has a trailing yield of around 3.9% on the current share price of JP¥1251.00. 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 Dai Nippon Toryo Company can afford its dividend, and if the dividend could grow.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Dai Nippon Toryo Company 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 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. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.

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.

View our latest analysis for Dai Nippon Toryo Company

Click here to see how much of its profit Dai Nippon Toryo Company paid out over the last 12 months.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Dai Nippon Toryo Company, with earnings per share up 9.3% on average over the last five years. Decent historical earnings per share growth suggests Dai Nippon Toryo Company has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Dai Nippon Toryo Company has delivered 15% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has Dai Nippon Toryo Company got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that Dai Nippon Toryo Company is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So while Dai Nippon Toryo Company looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 2 warning signs for Dai Nippon Toryo Company you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.