Toho Titanium Company, Limited (TSE:5727) Is About To Go Ex-Dividend, And It Pays A 1.1% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Toho Titanium Company, Limited (TSE:5727) is about to trade ex-dividend in the next 4 days. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Toho Titanium Company's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 12th of December.

The company's next dividend payment will be JP¥9.00 per share. Last year, in total, the company distributed JP¥18.00 to shareholders. Last year's total dividend payments show that Toho Titanium Company has a trailing yield of 1.1% on the current share price of JP¥1680.00. If you buy this business for its dividend, you should have an idea of whether Toho Titanium Company's dividend is reliable and sustainable. So we need to investigate whether Toho Titanium Company can afford its dividend, and if the dividend could grow.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Toho Titanium Company paid out more than half (50%) of its earnings last year, which is a regular payout ratio for most companies. 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. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.

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 Toho Titanium Company

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Toho Titanium Company's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Toho Titanium Company has increased its dividend at approximately 14% a year on average.

The Bottom Line

Has Toho Titanium Company got what it takes to maintain its dividend payments? It's unfortunate that earnings per share have not grown, and we'd note that Toho Titanium Company is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. In summary, while it has some positive characteristics, we're not inclined to race out and buy Toho Titanium Company today.

While it's tempting to invest in Toho Titanium Company for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Toho Titanium Company and understanding them should be part of your investment process.

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.