Should You Buy Nippon Hume Corporation (TSE:5262) For Its Upcoming Dividend?

Nippon Hume Corporation (TSE:5262) is about to trade 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Nippon Hume's shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be JP¥17.00 per share, and in the last 12 months, the company paid a total of JP¥34.00 per share. Looking at the last 12 months of distributions, Nippon Hume has a trailing yield of approximately 2.6% on its current stock price of JP¥1316.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Nippon Hume has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Nippon Hume

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nippon Hume 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 distributed 26% 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.

Click here to see how much of its profit Nippon Hume 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Nippon Hume, with earnings per share up 6.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nippon Hume has delivered an average of 11% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Nippon Hume got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Nippon Hume 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. It might be nice to see earnings growing faster, but Nippon Hume is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Nippon Hume, and we would prioritise taking a closer look at it.

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

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.