Ad-Sol Nissin Corporation (TSE:3837) Is About To Go Ex-Dividend, And It Pays A 3.2% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ad-Sol Nissin Corporation (TSE:3837) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Ad-Sol Nissin's shares before the 28th of March in order to receive the dividend, which the company will pay on the 27th of June.

The company's upcoming dividend is JP¥35.00 a share, following on from the last 12 months, when the company distributed a total of JP¥70.00 per share to shareholders. Based on the last year's worth of payments, Ad-Sol Nissin has a trailing yield of 3.2% on the current stock price of JP¥2205.00. If you buy this business for its dividend, you should have an idea of whether Ad-Sol Nissin's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Fortunately Ad-Sol Nissin's payout ratio is modest, at just 40% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Ad-Sol Nissin paid out more free cash flow than it generated - 124%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Ad-Sol Nissin does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Ad-Sol Nissin's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Ad-Sol Nissin to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for Ad-Sol Nissin

Click here to see how much of its profit Ad-Sol Nissin paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Ad-Sol Nissin earnings per share are up 5.8% per annum over the last five years. Earnings have been growing at a steady 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. In the past five years, Ad-Sol Nissin has increased its dividend at approximately 16% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Ad-Sol Nissin? Ad-Sol Nissin delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 124% of its cash flow over the last year, which is a mediocre outcome. 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.

With that being said, if dividends aren't your biggest concern with Ad-Sol Nissin, you should know about the other risks facing this business. Our analysis shows 1 warning sign for Ad-Sol Nissin and you should be aware of this before buying any 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.