Dividend Investors: Don't Be Too Quick To Buy Takeda Pharmaceutical Company Limited (TSE:4502) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Takeda Pharmaceutical Company Limited (TSE:4502) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Accordingly, Takeda Pharmaceutical 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 upcoming dividend is JP¥102.00 a share, following on from the last 12 months, when the company distributed a total of JP¥204 per share to shareholders. Looking at the last 12 months of distributions, Takeda Pharmaceutical has a trailing yield of approximately 3.5% on its current stock price of JP¥5885.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Takeda Pharmaceutical's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Takeda Pharmaceutical didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

See our latest analysis for Takeda Pharmaceutical

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Takeda Pharmaceutical was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Takeda Pharmaceutical has increased its dividend at approximately 1.3% a year on average.

We update our analysis on Takeda Pharmaceutical every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Should investors buy Takeda Pharmaceutical for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Takeda Pharmaceutical.

Although, if you're still interested in Takeda Pharmaceutical and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 2 warning signs for Takeda Pharmaceutical (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.

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.