Nadex (TSE:7435) Will Pay A Dividend Of ¥22.00

Nadex Co., Ltd. (TSE:7435) has announced that it will pay a dividend of ¥22.00 per share on the 24th of July. This means the annual payment is 3.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Nadex

Estimates Indicate Nadex's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Nadex's dividend made up quite a large proportion of earnings but only 13% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 20.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 164%, which could put the dividend under pressure if earnings don't start to improve.

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Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥12.00 in 2015, and the most recent fiscal year payment was ¥33.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Nadex has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 20% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Nadex's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 4 warning signs for Nadex that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated 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.