There's A Lot To Like About Toyo Drilube's (TSE:4976) Upcoming JP¥36.00 Dividend

Toyo Drilube Co., Ltd. (TSE:4976) is about to trade ex-dividend in the next 4 days. The ex-dividend date generally occurs two days 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 can take two business days or more to settle. Thus, you can purchase Toyo Drilube's shares before the 27th of June in order to receive the dividend, which the company will pay on the 9th of September.

The company's next dividend payment will be JP¥36.00 per share, on the back of last year when the company paid a total of JP¥72.00 to shareholders. Calculating the last year's worth of payments shows that Toyo Drilube has a trailing yield of 1.8% on the current share price of JP¥3960.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Toyo Drilube is paying out just 5.7% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Toyo Drilube generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.

It's positive to see that Toyo Drilube's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Toyo Drilube

Click here to see how much of its profit Toyo Drilube 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 Toyo Drilube, with earnings per share up 6.7% on average over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Toyo Drilube has lifted its dividend by approximately 9.1% a year on average. 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 Toyo Drilube got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Toyo Drilube 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. It might be nice to see earnings growing faster, but Toyo Drilube is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Toyo Drilube is facing. Our analysis shows 1 warning sign for Toyo Drilube and you should be aware of it before buying any shares.

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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.