Is It Worth Considering NIHON CHOUZAI Co.,Ltd. (TSE:3341) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that NIHON CHOUZAI Co.,Ltd. (TSE:3341) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase NIHON CHOUZAILtd's shares on or after the 27th of September will not receive the dividend, which will be paid on the 6th of December.

The company's next dividend payment will be JP¥12.50 per share. Last year, in total, the company distributed JP¥25.00 to shareholders. Looking at the last 12 months of distributions, NIHON CHOUZAILtd has a trailing yield of approximately 2.0% on its current stock price of JP¥1240.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for NIHON CHOUZAILtd

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. That's why it's good to see NIHON CHOUZAILtd paying out a modest 43% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 7.5% of its cash flow last 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Readers will understand then, why we're concerned to see NIHON CHOUZAILtd's earnings per share have dropped 14% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. NIHON CHOUZAILtd has delivered an average of 3.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Is NIHON CHOUZAILtd an attractive dividend stock, or better left on the shelf? NIHON CHOUZAILtd has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, NIHON CHOUZAILtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while NIHON CHOUZAILtd has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 4 warning signs for NIHON CHOUZAILtd you should know about.

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.