Be Sure To Check Out Nippon Chemical Industrial Co., Ltd. (TSE:4092) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Nippon Chemical Industrial Co., Ltd. (TSE:4092) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. Accordingly, Nippon Chemical Industrial investors that purchase the stock on or after the 27th of September will not receive the dividend, which will be paid on the 5th of December.

The company's upcoming dividend is JP¥35.00 a share, following on from the last 12 months, when the company distributed a total of JP¥70.00 per share to shareholders. Looking at the last 12 months of distributions, Nippon Chemical Industrial has a trailing yield of approximately 2.5% on its current stock price of JP¥2809.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Nippon Chemical Industrial

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. Nippon Chemical Industrial has a low and conservative payout ratio of just 24% of its income after tax. 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. Fortunately, it paid out only 35% of its free cash flow in the past year.

It's positive to see that Nippon Chemical Industrial'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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Nippon Chemical Industrial earnings per share are up 3.4% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Nippon Chemical Industrial has lifted its dividend by approximately 8.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has Nippon Chemical Industrial got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Nippon Chemical Industrial 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. It might be nice to see earnings growing faster, but Nippon Chemical Industrial is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

So while Nippon Chemical Industrial looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Nippon Chemical Industrial has 2 warning signs (and 1 which is significant) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.