Is It Worth Considering Asahi Diamond Industrial Co., Ltd. (TSE:6140) For Its Upcoming Dividend?
Readers hoping to buy Asahi Diamond Industrial Co., Ltd. (TSE:6140) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Asahi Diamond Industrial investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 1st of December.
The company's next dividend payment will be JP¥17.00 per share, on the back of last year when the company paid a total of JP¥34.00 to shareholders. Calculating the last year's worth of payments shows that Asahi Diamond Industrial has a trailing yield of 3.0% on the current share price of JP¥1128.00. If you buy this business for its dividend, you should have an idea of whether Asahi Diamond Industrial's dividend is reliable and sustainable. As a result, readers should always check whether Asahi Diamond Industrial has been able to grow its dividends, or if the dividend might be cut.
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. Asahi Diamond Industrial paid out more than half (62%) of its earnings last year, which is a regular payout ratio for most companies. 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. Dividends consumed 62% 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.
See our latest analysis for Asahi Diamond Industrial
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 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 Asahi Diamond Industrial earnings per share are up 5.2% per annum over the last five years. Decent historical earnings per share growth suggests Asahi Diamond Industrial has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Asahi Diamond Industrial has delivered 1.3% dividend growth per year on average over the past 10 years.
Final Takeaway
Is Asahi Diamond Industrial worth buying for its dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Asahi Diamond Industrial's dividend merits.
If you want to look further into Asahi Diamond Industrial, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 2 warning signs for Asahi Diamond Industrial 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.