Is It Smart To Buy Nippon Paint Holdings Co., Ltd. (TSE:4612) Before It Goes Ex-Dividend?

It looks like Nippon Paint Holdings Co., Ltd. (TSE:4612) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Nippon Paint Holdings' shares on or after the 27th of December, you won't be eligible to receive the dividend, when it is paid on the 28th of March.

The company's upcoming dividend is JP¥8.00 a share, following on from the last 12 months, when the company distributed a total of JP¥15.00 per share to shareholders. Based on the last year's worth of payments, Nippon Paint Holdings stock has a trailing yield of around 1.5% on the current share price of JP¥1016.50. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Nippon Paint Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Nippon Paint Holdings paying out a modest 29% of its earnings. A useful secondary check can be to evaluate whether Nippon Paint Holdings generated enough free cash flow to afford its dividend. It paid out more than half (50%) of its free cash flow in the past year, which is within an average range for most companies.

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 strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Nippon Paint Holdings's earnings per share have been growing at 13% a year for the past five years. Nippon Paint Holdings has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Nippon Paint Holdings has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Nippon Paint Holdings? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Nippon Paint Holdings is facing. For example - Nippon Paint Holdings has 1 warning sign we think 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.