Only Three Days Left To Cash In On NittoseikoLtd's (TSE:5957) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Nittoseiko Co.,Ltd. (TSE:5957) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day 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 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. Accordingly, NittoseikoLtd investors that purchase the stock on or after the 27th of December will not receive the dividend, which will be paid on the 28th of March.

The company's upcoming dividend is JP¥9.50 a share, following on from the last 12 months, when the company distributed a total of JP¥19.00 per share to shareholders. Based on the last year's worth of payments, NittoseikoLtd has a trailing yield of 3.1% on the current stock price of JP¥615.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for NittoseikoLtd

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 NittoseikoLtd's payout ratio is modest, at just 33% of profit. 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. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that NittoseikoLtd'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 the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that NittoseikoLtd's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings growth has been slim and the company is paying out more than half 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. NittoseikoLtd has delivered 9.0% dividend growth per year on average over the past 10 years.

Final Takeaway

From a dividend perspective, should investors buy or avoid NittoseikoLtd? NittoseikoLtd has struggled to grow earnings per share, and it's paying out less than half of its earnings and more than half its cash flow to shareholders as dividends. In summary, it's hard to get excited about NittoseikoLtd from a dividend perspective.

On that note, you'll want to research what risks NittoseikoLtd is facing. Our analysis shows 1 warning sign for NittoseikoLtd and you should be aware of it before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.