Be Sure To Check Out NEOJAPAN Inc. (TSE:3921) Before It Goes Ex-Dividend

It looks like NEOJAPAN Inc. (TSE:3921) is about to go ex-dividend in the next 4 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, NEOJAPAN investors that purchase the stock on or after the 30th of July will not receive the dividend, which will be paid on the 6th of October.

The company's next dividend payment will be JP¥21.00 per share, and in the last 12 months, the company paid a total of JP¥42.00 per share. Based on the last year's worth of payments, NEOJAPAN has a trailing yield of 2.4% on the current stock price of JP¥1722.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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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. NEOJAPAN paid out a comfortable 36% of its profit last year. 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. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.

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.

See our latest analysis for NEOJAPAN

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see NEOJAPAN has grown its earnings rapidly, up 27% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, NEOJAPAN has increased its dividend at approximately 38% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is NEOJAPAN an attractive dividend stock, or better left on the shelf? NEOJAPAN has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. NEOJAPAN looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while NEOJAPAN has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for NEOJAPAN and you should be aware of it before buying any shares.

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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.