Here's What We Like About DaikyoNishikawa's (TSE:4246) Upcoming Dividend

It looks like DaikyoNishikawa Corporation (TSE:4246) is about to go 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, DaikyoNishikawa investors that purchase the stock on or after the 29th of September will not receive the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be JP¥19.00 per share. Last year, in total, the company distributed JP¥38.00 to shareholders. Last year's total dividend payments show that DaikyoNishikawa has a trailing yield of 5.0% on the current share price of JP¥765.00. If you buy this business for its dividend, you should have an idea of whether DaikyoNishikawa's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately DaikyoNishikawa's payout ratio is modest, at just 42% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

See our latest analysis for DaikyoNishikawa

Click here to see how much of its profit DaikyoNishikawa paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at DaikyoNishikawa, with earnings per share up 5.5% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

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, DaikyoNishikawa has increased its dividend at approximately 13% a year on average. 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.

Final Takeaway

Has DaikyoNishikawa got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and DaikyoNishikawa is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. 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 DaikyoNishikawa is halfway there. There's a lot to like about DaikyoNishikawa, and we would prioritise taking a closer look at it.

While it's tempting to invest in DaikyoNishikawa for the dividends alone, you should always be mindful of the risks involved. For example - DaikyoNishikawa has 1 warning sign we think 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.