Here's Why We're Wary Of Buying Asahi Yukizai's (TSE:4216) For Its Upcoming Dividend
Asahi Yukizai Corporation (TSE:4216) stock is about to trade ex-dividend in 3 days. 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 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. Accordingly, Asahi Yukizai investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 8th of December.
The company's next dividend payment will be JP¥65.00 per share, and in the last 12 months, the company paid a total of JP¥130 per share. Calculating the last year's worth of payments shows that Asahi Yukizai has a trailing yield of 2.1% on the current share price of JP¥6090.00. If you buy this business for its dividend, you should have an idea of whether Asahi Yukizai's dividend is reliable and sustainable. So we need to investigate whether Asahi Yukizai 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 Yukizai paid out more than half (63%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Asahi Yukizai generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 358% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Asahi Yukizai is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
Asahi Yukizai does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Asahi Yukizai'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. Cash is king, as they say, and were Asahi Yukizai to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for Asahi Yukizai
Click here to see how much of its profit Asahi Yukizai paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Yukizai, with earnings per share up 5.5% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Asahi Yukizai has lifted its dividend by approximately 16% 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.
Final Takeaway
Has Asahi Yukizai got what it takes to maintain its dividend payments? Asahi Yukizai is paying out a reasonable percentage of its income and an uncomfortably high 358% of its cash flow as dividends. At least earnings per share have been growing steadily. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in Asahi Yukizai and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 3 warning signs for Asahi Yukizai that we recommend you consider before investing in the business.
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.