Read This Before Considering TOC Co., Ltd. (TSE:8841) For Its Upcoming JP¥5.00 Dividend

It looks like TOC Co., Ltd. (TSE:8841) is about to go ex-dividend in the next 2 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. Meaning, you will need to purchase TOC's shares before the 27th of September to receive the dividend, which will be paid on the 5th of December.

The company's upcoming dividend is JP¥5.00 a share, following on from the last 12 months, when the company distributed a total of JP¥10.00 per share to shareholders. Based on the last year's worth of payments, TOC stock has a trailing yield of around 1.6% on the current share price of JP¥642.00. If you buy this business for its dividend, you should have an idea of whether TOC's dividend is reliable and sustainable. So we need to investigate whether TOC can afford its dividend, and if the dividend could grow.

See our latest analysis for TOC

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. TOC has a low and conservative payout ratio of just 19% of its income after tax. A useful secondary check can be to evaluate whether TOC generated enough free cash flow to afford its dividend. Dividends consumed 60% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see TOC earnings per share are up 3.4% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, TOC has lifted its dividend by approximately 1.1% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid TOC? Earnings per share have been growing at a steady rate, and TOC paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, TOC looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while TOC has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 2 warning signs for TOC (1 is significant) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.