Is It Smart To Buy Asahi Kagaku Kogyo Co.,Ltd. (TSE:7928) Before It Goes Ex-Dividend?
Readers hoping to buy Asahi Kagaku Kogyo Co.,Ltd. (TSE:7928) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Asahi Kagaku KogyoLtd's shares before the 28th of August to receive the dividend, which will be paid on the 30th of November.
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. Looking at the last 12 months of distributions, Asahi Kagaku KogyoLtd has a trailing yield of approximately 1.5% on its current stock price of JP¥654.00. If you buy this business for its dividend, you should have an idea of whether Asahi Kagaku KogyoLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Asahi Kagaku KogyoLtd paying out a modest 32% of its earnings. 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. Luckily it paid out just 12% of its free cash flow last 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 Asahi Kagaku KogyoLtd
Click here to see how much of its profit Asahi Kagaku KogyoLtd 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Asahi Kagaku KogyoLtd, with earnings per share up 2.1% on average over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Asahi Kagaku KogyoLtd has increased its dividend at approximately 5.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Asahi Kagaku KogyoLtd? Earnings per share have been growing moderately, and Asahi Kagaku KogyoLtd is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Asahi Kagaku KogyoLtd is halfway there. There's a lot to like about Asahi Kagaku KogyoLtd, and we would prioritise taking a closer look at it.
While it's tempting to invest in Asahi Kagaku KogyoLtd for the dividends alone, you should always be mindful of the risks involved. Be aware that Asahi Kagaku KogyoLtd is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
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.