Daito PharmaceuticalLtd (TSE:4577) Is Due To Pay A Dividend Of ¥35.00

Daito Pharmaceutical Co.,Ltd.'s (TSE:4577) investors are due to receive a payment of ¥35.00 per share on 6th of August. This takes the dividend yield to 3.4%, which shareholders will be pleased with.

Check out our latest analysis for Daito PharmaceuticalLtd

Daito PharmaceuticalLtd's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Daito PharmaceuticalLtd's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 15.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Daito PharmaceuticalLtd Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ¥24.79 in 2015 to the most recent total annual payment of ¥70.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Daito PharmaceuticalLtd has seen earnings per share falling at 9.1% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. 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 always good to see the dividend being raised, we don't think Daito PharmaceuticalLtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Daito PharmaceuticalLtd is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Daito PharmaceuticalLtd that investors need to be conscious of moving forward. Is Daito PharmaceuticalLtd not quite the opportunity you were looking for? Why not check out 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.