NIC Autotec (TSE:5742) Will Pay A Dividend Of ¥21.00

The board of NIC Autotec, Inc. (TSE:5742) has announced that it will pay a dividend of ¥21.00 per share on the 24th of June. Based on this payment, the dividend yield on the company's stock will be 5.5%, which is an attractive boost to shareholder returns.

Check out our latest analysis for NIC Autotec

NIC Autotec's Distributions May Be Difficult To Sustain

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. While NIC Autotec is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Over the next year, EPS might fall by 198.1% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

NIC Autotec's Dividend Has Lacked Consistency

It's comforting to see that NIC Autotec has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥42.00. This means that it has been growing its distributions at 8.6% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. NIC Autotec has seen EPS fall by 198% over the last 12 months. Such a large drop can indicate that the business has run into some trouble and might end up in the dividend having to be reduced. Any one year of performance can be misleading for a variety of reasons, so we wouldn't like to form any strong conclusions based on these numbers alone.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think NIC Autotec is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, NIC Autotec has 4 warning signs (and 2 which are concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated 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.