Three Days Left Until TOYO Corporation (TSE:8151) Trades Ex-Dividend
TOYO Corporation (TSE:8151) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase TOYO's shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 22nd of December.
The company's next dividend payment will be JP¥40.00 per share, and in the last 12 months, the company paid a total of JP¥70.00 per share. Based on the last year's worth of payments, TOYO has a trailing yield of 3.6% on the current stock price of JP¥1936.00. If you buy this business for its dividend, you should have an idea of whether TOYO's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. TOYO paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether TOYO generated enough free cash flow to afford its dividend. TOYO paid out more free cash flow than it generated - 182%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
While TOYO's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to TOYO's ability to maintain its dividend.
View our latest analysis for TOYO
Click here to see how much of its profit TOYO 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. For this reason, we're glad to see TOYO's earnings per share have risen 16% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TOYO has delivered an average of 6.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is TOYO an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note TOYO paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
If you want to look further into TOYO, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 1 warning sign for TOYO you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.