Is It Smart To Buy Astellas Pharma Inc. (TSE:4503) Before It Goes Ex-Dividend?

Readers hoping to buy Astellas Pharma Inc. (TSE:4503) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. This means that investors who purchase Astellas Pharma’s shares 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¥40.00 a share, following on from the last 12 months, when the company distributed a total of JP¥80.00 per share to shareholders. Calculating the last year’s worth of payments shows that Astellas Pharma has a trailing yield of 3.3% on the current share price of JP¥2399.00. If you buy this business for its dividend, you should have an idea of whether Astellas Pharma’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s 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. That’s why it’s good to see Astellas Pharma paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Astellas Pharma generated enough free cash flow to afford its dividend. Fortunately, it paid out only 30% of its free cash flow in the past year.

It’s positive to see that Astellas Pharma’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Astellas Pharma

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It’s encouraging to see Astellas Pharma has grown its earnings rapidly, up 26% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Astellas Pharma has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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

Is Astellas Pharma worth buying for its dividend? Astellas Pharma has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There’s a lot to like about Astellas Pharma, and we would prioritise taking a closer look at it.

On that note, you’ll want to research what risks Astellas Pharma is facing. For example, we’ve found 1 warning sign for Astellas Pharma that we recommend you consider before investing in the business.

If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.