Do These 3 Checks Before Buying Nippon Concrete Industries Co., Ltd. (TSE:5269) For Its Upcoming Dividend

Nippon Concrete Industries Co., Ltd. (TSE:5269) stock is about to trade ex-dividend in three days. The ex-dividend date generally occurs two days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Nippon Concrete Industries' shares before the 28th of March in order to receive the dividend, which the company will pay on the 12th of June.

The company's upcoming dividend is JP¥6.50 a share, following on from the last 12 months, when the company distributed a total of JP¥13.00 per share to shareholders. Based on the last year's worth of payments, Nippon Concrete Industries has a trailing yield of 3.5% on the current stock price of JP¥372.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Nippon Concrete Industries can afford its dividend, and if the dividend could grow.

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. Last year, Nippon Concrete Industries paid out 382% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. Nippon Concrete Industries paid out more free cash flow than it generated - 113%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

As Nippon Concrete Industries's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

See our latest analysis for Nippon Concrete Industries

Click here to see how much of its profit Nippon Concrete Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Nippon Concrete Industries's earnings per share have plummeted approximately 33% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nippon Concrete Industries has delivered 10% dividend growth per year on average over the past 10 years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Nippon Concrete Industries is already paying out 382% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Should investors buy Nippon Concrete Industries for the upcoming dividend? Not only are earnings per share declining, but Nippon Concrete Industries is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Nippon Concrete Industries and want to know more, you'll find it very useful to know what risks this stock faces. For example, Nippon Concrete Industries has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.