Daito PharmaceuticalLtd (TSE:4577) Has Announced A Dividend Of ¥20.00

Daito Pharmaceutical Co.,Ltd.'s (TSE:4577) investors are due to receive a payment of ¥20.00 per share on 3rd of February. The dividend yield will be 3.4% based on this payment which is still above the industry average.

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Daito PharmaceuticalLtd's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Daito PharmaceuticalLtd's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

EPS is set to grow by 17.4% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 77% - on the higher side, but we wouldn't necessarily say this is unsustainable.

See our latest analysis for Daito PharmaceuticalLtd

Daito PharmaceuticalLtd Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥12.4 in 2015, and the most recent fiscal year payment was ¥40.00. This means that it has been growing its distributions at 12% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Daito PharmaceuticalLtd's EPS has declined at around 15% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Daito PharmaceuticalLtd's payments, as there could be some issues with sustaining them into the future. While Daito PharmaceuticalLtd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Daito PharmaceuticalLtd that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated 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.