It Might Not Be A Great Idea To Buy Kureha Corporation (TSE:4023) For Its Next Dividend
It looks like Kureha Corporation (TSE:4023) is about to go ex-dividend in the next couple of 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. Therefore, if you purchase Kureha's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 10th of December.
The company's upcoming dividend is JP¥108.00 a share, following on from the last 12 months, when the company distributed a total of JP¥216 per share to shareholders. Calculating the last year's worth of payments shows that Kureha has a trailing yield of 5.2% on the current share price of JP¥4165.00. If you buy this business for its dividend, you should have an idea of whether Kureha's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kureha'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 Kureha 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. Over the last year, it paid out dividends equivalent to 200% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Kureha is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
View our latest analysis for Kureha
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. Kureha reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kureha has delivered 19% dividend growth per year on average over the past 10 years.
We update our analysis on Kureha every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Is Kureha worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Kureha.
With that being said, if you're still considering Kureha as an investment, you'll find it beneficial to know what risks this stock is facing. For example, Kureha has 2 warning signs (and 1 which is potentially serious) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.