Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see KYORIN Pharmaceutical Co., Ltd. (TSE:4569) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase KYORIN Pharmaceutical'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¥10.00 per share, and in the last 12 months, the company paid a total of JP¥25.00 per share. Looking at the last 12 months of distributions, KYORIN Pharmaceutical has a trailing yield of approximately 2.2% on its current stock price of JP¥1127.00. If you buy this business for its dividend, you should have an idea of whether KYORIN Pharmaceutical's dividend is reliable and sustainable. So we need to investigate whether KYORIN Pharmaceutical can afford its dividend, and if the dividend could grow.
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. KYORIN Pharmaceutical distributed an unsustainably high 151% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether KYORIN Pharmaceutical generated enough free cash flow to afford its dividend. Over the past year it paid out 137% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given KYORIN Pharmaceutical's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
See our latest analysis for KYORIN Pharmaceutical
Click here to see how much of its profit KYORIN Pharmaceutical paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. KYORIN Pharmaceutical's earnings per share have fallen at approximately 19% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. KYORIN Pharmaceutical's dividend payments per share have declined at 8.1% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Has KYORIN Pharmaceutical got what it takes to maintain its dividend payments? Not only are earnings per share declining, but KYORIN Pharmaceutical is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not that we think KYORIN Pharmaceutical is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering KYORIN Pharmaceutical as an investment, you'll find it beneficial to know what risks this stock is facing. For example - KYORIN Pharmaceutical has 2 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.