Here's What We Like About Nissui's (TSE:1332) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Nissui Corporation (TSE:1332) is about to trade ex-dividend in the next three 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. 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. Thus, you can purchase Nissui's shares before the 27th of September in order to receive the dividend, which the company will pay on the 9th of December.

The company's next dividend payment will be JP¥12.00 per share. Last year, in total, the company distributed JP¥24.00 to shareholders. Looking at the last 12 months of distributions, Nissui has a trailing yield of approximately 2.6% on its current stock price of JP¥920.10. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Nissui

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. Nissui paid out a comfortable 32% of its profit last year. 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. Luckily it paid out just 22% of its free cash flow last year.

It's positive to see that Nissui'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Nissui earnings per share are up 8.6% 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. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nissui has delivered 22% dividend growth per year on average over the past nine years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Nissui worth buying for its dividend? Earnings per share growth has been growing somewhat, and Nissui is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 Nissui is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Nissui for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Nissui you should be aware of.

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.