Is It Worth Considering NS Tool Co., Ltd. (TSE:6157) For Its Upcoming Dividend?

NS Tool Co., Ltd. (TSE:6157) stock is about to trade ex-dividend in 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase NS Tool's shares on or after the 29th of September will not receive the dividend, which will be paid on the 2nd of December.

The company's next dividend payment will be JP¥15.00 per share, and in the last 12 months, the company paid a total of JP¥30.00 per share. Based on the last year's worth of payments, NS Tool stock has a trailing yield of around 3.7% on the current share price of JP¥820.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether NS Tool has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. NS Tool paid out 57% of its earnings to investors last year, a normal payout level for most businesses. 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. Fortunately, it paid out only 36% of its free cash flow in the past year.

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.

Check out our latest analysis for NS Tool

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see NS Tool's earnings per share have been shrinking at 3.2% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. NS Tool has delivered 15% dividend growth per year on average over the past 10 years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Is NS Tool worth buying for its dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. In summary, it's hard to get excited about NS Tool from a dividend perspective.

So if you want to do more digging on NS Tool, you'll find it worthwhile knowing the risks that this stock faces. For example - NS Tool has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.