Should Income Investors Look At Nittoc Construction Co., Ltd. (TSE:1929) Before Its Ex-Dividend?

It looks like Nittoc Construction Co., Ltd. (TSE:1929) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Nittoc Construction's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 2nd of December.

The company's next dividend payment will be JP¥22.00 per share, on the back of last year when the company paid a total of JP¥48.00 to shareholders. Based on the last year's worth of payments, Nittoc Construction stock has a trailing yield of around 4.7% on the current share price of JP¥1021.00. If you buy this business for its dividend, you should have an idea of whether Nittoc Construction's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Nittoc Construction

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. Nittoc Construction paid out 69% of its earnings to investors last year, a normal payout level for most businesses. 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. Dividends consumed 59% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Nittoc Construction'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.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Nittoc Construction's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nittoc Construction has delivered an average of 20% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Is Nittoc Construction worth buying for its dividend? Earnings per share have barely grown, and although Nittoc Construction paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. To summarise, Nittoc Construction looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you want to look further into Nittoc Construction, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 1 warning sign with Nittoc Construction and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.