Four Days Left Until Nippon Shinyaku Co., Ltd. (TSE:4516) Trades Ex-Dividend

Nippon Shinyaku Co., Ltd. (TSE:4516) is about to trade ex-dividend in the next 4 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. Therefore, if you purchase Nippon Shinyaku's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 5th of December.

The company's upcoming dividend is JP¥62.00 a share, following on from the last 12 months, when the company distributed a total of JP¥124 per share to shareholders. Looking at the last 12 months of distributions, Nippon Shinyaku has a trailing yield of approximately 3.7% on its current stock price of JP¥3371.00. If you buy this business for its dividend, you should have an idea of whether Nippon Shinyaku's dividend is reliable and sustainable. So we need to investigate whether Nippon Shinyaku can afford its dividend, and if the dividend could grow.

View our latest analysis for Nippon Shinyaku

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Nippon Shinyaku paying out a modest 31% of its earnings. 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 99% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Nippon Shinyaku paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Nippon Shinyaku's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Nippon Shinyaku's earnings per share have risen 11% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nippon Shinyaku has delivered an average of 19% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Has Nippon Shinyaku got what it takes to maintain its dividend payments? We like that Nippon Shinyaku has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

On that note, you'll want to research what risks Nippon Shinyaku is facing. For instance, we've identified 2 warning signs for Nippon Shinyaku (1 is significant) you should be aware of.

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.