Nac Co., Ltd. (TSE:9788) Passed Our Checks, And It's About To Pay A JP¥17.00 Dividend

Nac Co., Ltd. (TSE:9788) is about to trade ex-dividend in the next 3 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Nac investors that purchase the stock on or after the 28th of March will not receive the dividend, which will be paid on the 30th of June.

The company's next dividend payment will be JP¥17.00 per share, and in the last 12 months, the company paid a total of JP¥22.00 per share. Looking at the last 12 months of distributions, Nac has a trailing yield of approximately 3.5% on its current stock price of JP¥622.00. 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.

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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. Nac paid out 54% 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. It distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Nac'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.

See our latest analysis for Nac

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Nac's earnings per share have risen 15% per annum over the last five years. Nac is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Nac has increased its dividend at approximately 1.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Nac is keeping back more of its profits to grow the business.

Final Takeaway

From a dividend perspective, should investors buy or avoid Nac? Nac's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

So while Nac looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Nac and understanding them should be part of your investment process.

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.