Do These 3 Checks Before Buying Asahi Kagaku Kogyo Co.,Ltd. (TSE:7928) For Its Upcoming Dividend

It looks like Asahi Kagaku Kogyo Co.,Ltd. (TSE:7928) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Asahi Kagaku KogyoLtd's shares on or after the 29th of August will not receive the dividend, which will be paid on the 29th of November.

The company's next dividend payment will be JP¥7.00 per share, and in the last 12 months, the company paid a total of JP¥12.00 per share. Calculating the last year's worth of payments shows that Asahi Kagaku KogyoLtd has a trailing yield of 1.9% on the current share price of JP¥623.00. If you buy this business for its dividend, you should have an idea of whether Asahi Kagaku KogyoLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Asahi Kagaku KogyoLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Asahi Kagaku KogyoLtd paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Asahi Kagaku KogyoLtd generated enough free cash flow to afford its dividend. Over the past year it paid out 114% of its free cash flow as dividends, which is uncomfortably 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.

Asahi Kagaku KogyoLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Asahi Kagaku KogyoLtd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Asahi Kagaku KogyoLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Asahi Kagaku KogyoLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Asahi Kagaku KogyoLtd's earnings per share have fallen at approximately 8.6% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Asahi Kagaku KogyoLtd has delivered 4.1% dividend growth per year on average over the past 10 years.

Final Takeaway

Has Asahi Kagaku KogyoLtd got what it takes to maintain its dividend payments? Asahi Kagaku KogyoLtd's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Asahi Kagaku KogyoLtd and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 4 warning signs with Asahi Kagaku KogyoLtd and understanding them should be part of your investment process.

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.