Needs Well Inc. (TSE:3992) Is About To Go Ex-Dividend, And It Pays A 1.9% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Needs Well Inc. (TSE:3992) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase Needs Well's shares before the 29th of September to receive the dividend, which will be paid on the 24th of December.

The company's next dividend payment will be JP¥12.00 per share, and in the last 12 months, the company paid a total of JP¥12.00 per share. Calculating the last year's worth of payments shows that Needs Well has a trailing yield of 1.9% on the current share price of JP¥616.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Needs Well can afford its dividend, and if the dividend could grow.

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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. Needs Well paid out a comfortable 44% of its profit last year. A useful secondary check can be to evaluate whether Needs Well generated enough free cash flow to afford its dividend. Fortunately, it paid out only 40% of its free cash flow in the past year.

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.

Check out our latest analysis for Needs Well

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. To our modest chagrin, Needs Well earnings per share have been effectively flat over the past year. The best dividend stocks all grow their earnings per share over the long run, but it is hard to draw strong conclusions from any one year period.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, Needs Well has lifted its dividend by approximately 23% a year on average.

The Bottom Line

Is Needs Well an attractive dividend stock, or better left on the shelf? While it's not great to see that earnings per share are effectively flat over the five-year period we checked, at least the payout ratios are low and conservative. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 2 warning signs for Needs Well you should be aware of.

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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.