There's A Lot To Like About Nankai Electric Railway's (TSE:9044) Upcoming JP¥17.50 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Nankai Electric Railway Co., Ltd. (TSE:9044) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Nankai Electric Railway's shares on or after the 27th of September, you won't be eligible to receive the dividend, when it is paid on the 1st of January.

The company's next dividend payment will be JP¥17.50 per share, and in the last 12 months, the company paid a total of JP¥35.00 per share. Based on the last year's worth of payments, Nankai Electric Railway stock has a trailing yield of around 1.5% on the current share price of JP¥2349.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Nankai Electric Railway

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. Nankai Electric Railway has a low and conservative payout ratio of just 15% of its income after tax. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 8.8% of its cash flow last 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.

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

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. For this reason, we're glad to see Nankai Electric Railway's earnings per share have risen 15% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Nankai Electric Railway has lifted its dividend by approximately 3.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Nankai Electric Railway is keeping back more of its profits to grow the business.

Final Takeaway

Has Nankai Electric Railway got what it takes to maintain its dividend payments? It's great that Nankai Electric Railway is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Nankai Electric Railway for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Nankai Electric Railway that you should be aware of before investing in their shares.

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.