There's A Lot To Like About Nihon Nohyaku's (TSE:4997) Upcoming JP¥10.00 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 Nohyaku Co., Ltd. (TSE:4997) is about to go ex-dividend in just three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase Nihon Nohyaku's shares on or after the 28th of March will not receive the dividend, which will be paid on the 20th of June.

The company's upcoming dividend is JP¥10.00 a share, following on from the last 12 months, when the company distributed a total of JP¥20.00 per share to shareholders. Last year's total dividend payments show that Nihon Nohyaku has a trailing yield of 2.6% on the current share price of JP¥759.00. If you buy this business for its dividend, you should have an idea of whether Nihon Nohyaku's dividend is reliable and sustainable. As a result, readers should always check whether Nihon Nohyaku has been able to grow its dividends, or if the dividend might be cut.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Nihon Nohyaku paying out a modest 27% of its earnings. A useful secondary check can be to evaluate whether Nihon Nohyaku generated enough free cash flow to afford its dividend. Luckily it paid out just 21% of its free 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.

View our latest analysis for Nihon Nohyaku

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

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. 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 Nihon Nohyaku's earnings per share have risen 11% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nihon Nohyaku has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Has Nihon Nohyaku got what it takes to maintain its dividend payments? It's great that Nihon Nohyaku is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Nihon Nohyaku looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Nihon Nohyaku for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Nihon Nohyaku that you should be aware of before investing in their shares.

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.