It Might Not Be A Great Idea To Buy Kumiai Chemical Industry Co., Ltd. (TSE:4996) For Its Next Dividend
Kumiai Chemical Industry Co., Ltd. (TSE:4996) stock is about to trade ex-dividend in 3 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Kumiai Chemical Industry's shares on or after the 29th of October, you won't be eligible to receive the dividend, when it is paid on the 29th of January.
The company's upcoming dividend is JP¥14.00 a share, following on from the last 12 months, when the company distributed a total of JP¥28.00 per share to shareholders. Based on the last year's worth of payments, Kumiai Chemical Industry stock has a trailing yield of around 4.3% on the current share price of JP¥655.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Kumiai Chemical Industry paid out 273% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 16% of its free cash flow last year.
It's good to see that while Kumiai Chemical Industry's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Check out our latest analysis for Kumiai Chemical Industry
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Kumiai Chemical Industry's earnings per share have plummeted approximately 30% a year over the previous five years.
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, Kumiai Chemical Industry has increased its dividend at approximately 13% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Kumiai Chemical Industry is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
Final Takeaway
Has Kumiai Chemical Industry got what it takes to maintain its dividend payments? It's not a great combination to see a company with earnings in decline and paying out 273% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Kumiai Chemical Industry's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Kumiai Chemical Industry.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Kumiai Chemical Industry. To help with this, we've discovered 3 warning signs for Kumiai Chemical Industry that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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