Read This Before Considering Fujikura Kasei Co., Ltd. (TSE:4620) For Its Upcoming JP¥9.00 Dividend

Fujikura Kasei Co., Ltd. (TSE:4620) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Fujikura Kasei's shares before the 28th of March in order to receive the dividend, which the company will pay on the 27th of June.

The company's next dividend payment will be JP¥9.00 per share, on the back of last year when the company paid a total of JP¥18.00 to shareholders. Based on the last year's worth of payments, Fujikura Kasei stock has a trailing yield of around 3.5% on the current share price of JP¥515.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Fujikura Kasei can afford its dividend, and if the dividend could grow.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fujikura Kasei paid out a comfortable 34% of its profit last year. A useful secondary check can be to evaluate whether Fujikura Kasei generated enough free cash flow to afford its dividend. It distributed 41% of its free cash flow as dividends, a comfortable payout level 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.

See our latest analysis for Fujikura Kasei

Click here to see how much of its profit Fujikura Kasei paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Fujikura Kasei's earnings are down 4.5% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fujikura Kasei has delivered 2.5% dividend growth per year on average over the past 10 years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Fujikura Kasei? Fujikura Kasei has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in Fujikura Kasei for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Fujikura Kasei and understanding them should be part of your investment process.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.