Three Days Left Until Araya Industrial Co., Ltd. (TSE:7305) Trades Ex-Dividend

Readers hoping to buy Araya Industrial Co., Ltd. (TSE:7305) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase Araya Industrial's shares before the 28th of March in order to be eligible for the dividend, which will be paid on the 30th of June.

The company's next dividend payment will be JP¥200.00 per share, and in the last 12 months, the company paid a total of JP¥300 per share. Looking at the last 12 months of distributions, Araya Industrial has a trailing yield of approximately 6.2% on its current stock price of JP¥4850.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Araya Industrial paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Araya Industrial generated enough free cash flow to afford its dividend. It paid out 18% of its free cash flow as dividends last year, which is conservatively low.

It's good to see that while Araya Industrial's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

See our latest analysis for Araya Industrial

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Araya Industrial, with earnings per share up 3.6% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Araya Industrial has delivered 22% dividend growth per year on average over the past 10 years. 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

Has Araya Industrial got what it takes to maintain its dividend payments? Earnings per share have grown modestly, and last year Araya Industrial paid out a low percentage of its cash flow. However, its dividend payments were not well covered by profits. In summary, it's hard to get excited about Araya Industrial from a dividend perspective.

So if you want to do more digging on Araya Industrial, you'll find it worthwhile knowing the risks that this stock faces. For example - Araya Industrial has 1 warning sign we think you should be aware of.

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.