Be Sure To Check Out Ono Pharmaceutical Co., Ltd. (TSE:4528) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ono Pharmaceutical Co., Ltd. (TSE:4528) is about to go ex-dividend in just three days. The ex-dividend date is commonly two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Ono Pharmaceutical's shares on or after the 28th of March will not receive the dividend, which will be paid on the 23rd of June.

The company's next dividend payment will be JP¥40.00 per share, and in the last 12 months, the company paid a total of JP¥80.00 per share. Looking at the last 12 months of distributions, Ono Pharmaceutical has a trailing yield of approximately 4.8% on its current stock price of JP¥1682.00. If you buy this business for its dividend, you should have an idea of whether Ono Pharmaceutical's dividend is reliable and sustainable. As a result, readers should always check whether Ono Pharmaceutical has been able to grow its dividends, or if the dividend might be cut.

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. Ono Pharmaceutical is paying out an acceptable 51% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Ono Pharmaceutical generated enough free cash flow to afford its dividend. Fortunately, it paid out only 50% of its free cash flow in the past year.

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.

Check out our latest analysis for Ono Pharmaceutical

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. With that in mind, we're encouraged by the steady growth at Ono Pharmaceutical, with earnings per share up 9.5% on average over the last five years. Decent historical earnings per share growth suggests Ono Pharmaceutical 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Ono Pharmaceutical has increased its dividend at approximately 8.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Ono Pharmaceutical for the upcoming dividend? While earnings per share growth has been modest, Ono Pharmaceutical's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ono Pharmaceutical today.

So while Ono Pharmaceutical looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Ono Pharmaceutical has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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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.