Here's What We Like About Japan Pulp and Paper's (TSE:8032) Upcoming Dividend

Readers hoping to buy Japan Pulp and Paper Company Limited (TSE:8032) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Therefore, if you purchase Japan Pulp and Paper's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 1st of December.

The company's next dividend payment will be JP¥18.00 per share, and in the last 12 months, the company paid a total of JP¥36.00 per share. Calculating the last year's worth of payments shows that Japan Pulp and Paper has a trailing yield of 2.8% on the current share price of JP¥1266.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! 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. Japan Pulp and Paper is paying out an acceptable 74% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Japan Pulp and Paper generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.

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.

Check out our latest analysis for Japan Pulp and Paper

Click here to see how much of its profit Japan Pulp and Paper 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Japan Pulp and Paper's earnings per share have been growing at 13% a year for the past five years. Japan Pulp and Paper has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

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, Japan Pulp and Paper has lifted its dividend by approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Japan Pulp and Paper an attractive dividend stock, or better left on the shelf? We like Japan Pulp and Paper's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Japan Pulp and Paper looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Japan Pulp and Paper has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 3 warning signs for Japan Pulp and Paper (1 is concerning) you should be aware of.

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.