Income Investors Should Know That Toyo Seikan Group Holdings, Ltd. (TSE:5901) Goes Ex-Dividend Soon

It looks like Toyo Seikan Group Holdings, Ltd. (TSE:5901) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Toyo Seikan Group Holdings' shares on or after the 27th of September will not receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥45.00 per share. Last year, in total, the company distributed JP¥91.00 to shareholders. Looking at the last 12 months of distributions, Toyo Seikan Group Holdings has a trailing yield of approximately 4.0% on its current stock price of JP¥2284.50. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Toyo Seikan Group Holdings

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. Toyo Seikan Group Holdings paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Toyo Seikan Group Holdings generated enough free cash flow to afford its dividend. Toyo Seikan Group Holdings paid out more free cash flow than it generated - 150%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Toyo Seikan Group Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Toyo Seikan Group Holdings's ability to maintain its dividend.

Click here to see how much of its profit Toyo Seikan Group Holdings 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 Seikan Group Holdings, with earnings per share up 8.0% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Toyo Seikan Group Holdings has delivered an average of 21% 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.

Final Takeaway

Has Toyo Seikan Group Holdings got what it takes to maintain its dividend payments? Earnings per share have grown somewhat, although Toyo Seikan Group Holdings paid out over half its profits and the dividend was not well covered by free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Toyo Seikan Group Holdings.

So if you're still interested in Toyo Seikan Group Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Toyo Seikan Group Holdings has 1 warning sign we think 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.