Don't Buy Nihon Flush Co., Ltd. (TSE:7820) For Its Next Dividend Without Doing These Checks

It looks like Nihon Flush Co., Ltd. (TSE:7820) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be two business days 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 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. Thus, you can purchase Nihon Flush's shares before the 29th of September in order to receive the dividend, which the company will pay on the 25th of November.

The company's next dividend payment will be JP¥18.00 per share, and in the last 12 months, the company paid a total of JP¥36.00 per share. Looking at the last 12 months of distributions, Nihon Flush has a trailing yield of approximately 4.4% on its current stock price of JP¥819.00. 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 Nihon Flush 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. Nihon Flush's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Nihon Flush didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

Check out our latest analysis for Nihon Flush

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Nihon Flush reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nihon Flush has delivered an average of 9.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Remember, you can always get a snapshot of Nihon Flush's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Has Nihon Flush got what it takes to maintain its dividend payments? It's hard to get used to Nihon Flush paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Nihon Flush.

With that being said, if you're still considering Nihon Flush as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 2 warning signs with Nihon Flush (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

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.