Terumo (TSE:4543) Could Be A Buy For Its Upcoming Dividend
Terumo Corporation (TSE:4543) is set to trade ex-dividend in three days, with a dividend payment of JP¥15.00 per share scheduled for December 3rd. The company has a trailing yield of approximately 1.2% and paid out 31% of its profit and free cash flow in dividends last year, indicating sustainability. Terumo has shown steady earnings growth of 8.3% over the past five years and a 15% average annual dividend growth over the last decade. This combination suggests potential for future dividend increases, making it an attractive option for investors.
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Terumo Corporation (TSE:4543) is about to trade ex-dividend in the next 3 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. 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. Accordingly, Terumo investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 3rd of December.
The company's next dividend payment will be JP¥15.00 per share, on the back of last year when the company paid a total of JP¥30.00 to shareholders. Looking at the last 12 months of distributions, Terumo has a trailing yield of approximately 1.2% on its current stock price of JP¥2455.50. 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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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Terumo paid out a comfortable 31% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 31% of its free cash flow in the past 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 Terumo
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Terumo, with earnings per share up 8.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Terumo has delivered 15% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy Terumo for the upcoming dividend? Earnings per share growth has been growing somewhat, and Terumo is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Terumo is halfway there. Overall we think this is an attractive combination and worthy of further research.
Ever wonder what the future holds for Terumo? See what the 15 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
