Should You Buy Ishihara Chemical Co., Ltd. (TSE:4462) For Its Upcoming Dividend?
Ishihara Chemical Co., Ltd. (TSE:4462) 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Ishihara Chemical's shares before the 29th of September in order to receive the dividend, which the company will pay on the 1st of December.
The company's next dividend payment will be JP¥24.00 per share, on the back of last year when the company paid a total of JP¥48.00 to shareholders. Based on the last year's worth of payments, Ishihara Chemical stock has a trailing yield of around 1.7% on the current share price of JP¥2801.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ishihara Chemical has a low and conservative payout ratio of just 18% of its income after tax. A useful secondary check can be to evaluate whether Ishihara Chemical generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Ishihara Chemical'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 Ishihara Chemical
Click here to see how much of its profit Ishihara Chemical 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Ishihara Chemical's earnings have been skyrocketing, up 21% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Ishihara Chemical looks like a promising growth company.
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, Ishihara Chemical has lifted its dividend by approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Has Ishihara Chemical got what it takes to maintain its dividend payments? We love that Ishihara Chemical is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Ishihara Chemical looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Ishihara Chemical has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Ishihara Chemical that we recommend you consider before investing in the business.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.