Should You Buy Zeria Pharmaceutical Co., Ltd. (TSE:4559) For Its Upcoming Dividend?

Zeria Pharmaceutical Co., Ltd. (TSE:4559) stock is about to trade ex-dividend in 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Thus, you can purchase Zeria Pharmaceutical's shares before the 28th of March in order to receive the dividend, which the company will pay on the 30th of June.

The company's next dividend payment will be JP¥23.00 per share, on the back of last year when the company paid a total of JP¥46.00 to shareholders. Looking at the last 12 months of distributions, Zeria Pharmaceutical has a trailing yield of approximately 2.0% on its current stock price of JP¥2285.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Zeria Pharmaceutical paid out a comfortable 26% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.

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.

View our latest analysis for Zeria Pharmaceutical

Click here to see how much of its profit Zeria Pharmaceutical 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 fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Zeria Pharmaceutical's earnings per share have risen 20% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zeria Pharmaceutical has delivered 4.4% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Zeria Pharmaceutical is keeping back more of its profits to grow the business.

Final Takeaway

From a dividend perspective, should investors buy or avoid Zeria Pharmaceutical? We love that Zeria Pharmaceutical is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

Curious about whether Zeria Pharmaceutical has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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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.