Read This Before Considering Hokko Chemical Industry Co., Ltd. (TSE:4992) For Its Upcoming JP¥16.00 Dividend

Readers hoping to buy Hokko Chemical Industry Co., Ltd. (TSE:4992) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Hokko Chemical Industry's shares before the 28th of November to receive the dividend, which will be paid on the 26th of February.

The company's next dividend payment will be JP¥16.00 per share. Last year, in total, the company distributed JP¥32.00 to shareholders. Looking at the last 12 months of distributions, Hokko Chemical Industry has a trailing yield of approximately 2.4% on its current stock price of JP¥1338.00. If you buy this business for its dividend, you should have an idea of whether Hokko Chemical Industry's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Hokko Chemical Industry

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hokko Chemical Industry is paying out just 17% 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 Hokko Chemical Industry generated enough free cash flow to afford its dividend. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Hokko Chemical Industry earnings per share are up 5.3% per annum over the last five years. Decent historical earnings per share growth suggests Hokko Chemical Industry 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. Hokko Chemical Industry has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.

The Bottom Line

Is Hokko Chemical Industry worth buying for its dividend? Earnings per share growth has been modest, and it's interesting that Hokko Chemical Industry 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 Hokko Chemical Industry looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Hokko Chemical Industry you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.