Asahi Songwon Colors Limited (NSE:ASAHISONG) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Asahi Songwon Colors Limited (NSE:ASAHISONG) is about to go ex-dividend in just 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Asahi Songwon Colors investors that purchase the stock on or after the 23rd of September will not receive the dividend, which will be paid on the 30th of October.
The company's next dividend payment will be ₹1.50 per share, and in the last 12 months, the company paid a total of ₹1.50 per share. Calculating the last year's worth of payments shows that Asahi Songwon Colors has a trailing yield of 0.4% on the current share price of ₹372.80. If you buy this business for its dividend, you should have an idea of whether Asahi Songwon Colors's dividend is reliable and sustainable. So we need to investigate whether Asahi Songwon Colors can afford its dividend, and if the dividend could grow.
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. Asahi Songwon Colors has a low and conservative payout ratio of just 9.4% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 4.7% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Asahi Songwon Colors's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Asahi Songwon Colors
Click here to see how much of its profit Asahi Songwon Colors paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Asahi Songwon Colors's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Asahi Songwon Colors has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see.
The Bottom Line
Has Asahi Songwon Colors got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Asahi Songwon Colors is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Asahi Songwon Colors is halfway there. Overall we think this is an attractive combination and worthy of further research.
So while Asahi Songwon Colors looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Asahi Songwon Colors has 3 warning signs we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking 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.