Taiheiyo Cement Corporation (TSE:5233) stock is about to trade ex-dividend in three days. 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. 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. This means that investors who purchase Taiheiyo Cement's shares on or after the 29th of September will not receive the dividend, which will be paid on the 2nd of December.
The company's next dividend payment will be JP¥60.00 per share. Last year, in total, the company distributed JP¥120 to shareholders. Last year's total dividend payments show that Taiheiyo Cement has a trailing yield of 2.9% on the current share price of JP¥4186.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Taiheiyo Cement's payout ratio is modest, at just 41% of profit. A useful secondary check can be to evaluate whether Taiheiyo Cement generated enough free cash flow to afford its dividend. It paid out 78% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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 Taiheiyo Cement
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Taiheiyo Cement's earnings per share have dropped 8.6% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Taiheiyo Cement has lifted its dividend by approximately 7.2% a year on average.
Final Takeaway
Should investors buy Taiheiyo Cement for the upcoming dividend? Earnings per share have fallen significantly, although at least Taiheiyo Cement paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. In summary, while it has some positive characteristics, we're not inclined to race out and buy Taiheiyo Cement today.
If you want to look further into Taiheiyo Cement, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 4 warning signs with Taiheiyo Cement and understanding them should be part of your investment process.
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.