Should You Buy Nifco Inc. (TSE:7988) For Its Upcoming Dividend?

Readers hoping to buy Nifco Inc. (TSE:7988) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Nifco's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 25th of November.

The company's next dividend payment will be JP¥40.00 per share, and in the last 12 months, the company paid a total of JP¥80.00 per share. Calculating the last year's worth of payments shows that Nifco has a trailing yield of 1.8% on the current share price of JP¥4465.00. If you buy this business for its dividend, you should have an idea of whether Nifco's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Nifco is paying out just 16% 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. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.

It's positive to see that Nifco'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.

Check out our latest analysis for Nifco

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. That's why it's comforting to see Nifco's earnings have been skyrocketing, up 22% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Nifco looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Nifco has lifted its dividend by approximately 8.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Nifco worth buying for its dividend? Nifco has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Nifco looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 2 warning signs for Nifco (1 makes us a bit uncomfortable) you should be aware of.

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.