Noritsu Koki Co., Ltd. (TSE:7744) Passed Our Checks, And It's About To Pay A JP¥58.00 Dividend

It looks like Noritsu Koki Co., Ltd. (TSE:7744) 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Noritsu Koki's shares on or after the 27th of December will not receive the dividend, which will be paid on the 24th of March.

The company's next dividend payment will be JP¥58.00 per share, and in the last 12 months, the company paid a total of JP¥116 per share. Based on the last year's worth of payments, Noritsu Koki has a trailing yield of 2.3% on the current stock price of JP¥5000.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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 Noritsu Koki

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Noritsu Koki's payout ratio is modest, at just 40% of profit. A useful secondary check can be to evaluate whether Noritsu Koki generated enough free cash flow to afford its dividend. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Noritsu Koki'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 Noritsu Koki 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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Noritsu Koki earnings per share are up 9.3% per annum 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Noritsu Koki has lifted its dividend by approximately 31% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Noritsu Koki? Earnings per share have been growing moderately, and Noritsu Koki 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Noritsu Koki is halfway there. There's a lot to like about Noritsu Koki, and we would prioritise taking a closer look at it.

While it's tempting to invest in Noritsu Koki for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Noritsu Koki that you should be aware of before investing in their shares.

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