Read This Before Considering NEXON Co., Ltd. (TSE:3659) For Its Upcoming JP¥15.00 Dividend

NEXON Co., Ltd. (TSE:3659) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase NEXON's shares before the 27th of December to receive the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be JP¥15.00 per share. Last year, in total, the company distributed JP¥30.00 to shareholders. Last year's total dividend payments show that NEXON has a trailing yield of 1.3% on the current share price of JP¥2278.00. 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 NEXON can afford its dividend, and if the dividend could grow.

See our latest analysis for NEXON

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. NEXON paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. NEXON's earnings per share have fallen at approximately 9.4% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. NEXON has delivered 20% dividend growth per year on average over the past 10 years.

The Bottom Line

Has NEXON got what it takes to maintain its dividend payments? NEXON has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's hard to get excited about NEXON from a dividend perspective.

On that note, you'll want to research what risks NEXON is facing. Every company has risks, and we've spotted 3 warning signs for NEXON 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.