Why You Might Be Interested In Nihon Tokushu Toryo Co., Ltd. (TSE:4619) For Its Upcoming Dividend

Nihon Tokushu Toryo Co., Ltd. (TSE:4619) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Nihon Tokushu Toryo's shares before the 27th of September to receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥22.00 per share, and in the last 12 months, the company paid a total of JP¥48.00 per share. Looking at the last 12 months of distributions, Nihon Tokushu Toryo has a trailing yield of approximately 3.9% on its current stock price of JP¥1227.00. If you buy this business for its dividend, you should have an idea of whether Nihon Tokushu Toryo's dividend is reliable and sustainable. As a result, readers should always check whether Nihon Tokushu Toryo has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Nihon Tokushu Toryo

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Nihon Tokushu Toryo is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 paid out 12% of its free cash flow as dividends last year, which is conservatively low.

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.

Click here to see how much of its profit Nihon Tokushu Toryo 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Nihon Tokushu Toryo earnings per share are up 9.2% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nihon Tokushu Toryo has delivered 17% 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.

The Bottom Line

Is Nihon Tokushu Toryo worth buying for its dividend? Earnings per share have been growing moderately, and Nihon Tokushu Toryo 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 Nihon Tokushu Toryo is halfway there. Nihon Tokushu Toryo looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Want to learn more about Nihon Tokushu Toryo's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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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.