Here's What We Like About Nippon Concept's (TSE:9386) Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Nippon Concept Corporation (TSE:9386) is about to go ex-dividend in just 3 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 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 Nippon Concept's shares on or after the 27th of December, you won't be eligible to receive the dividend, when it is paid on the 28th of March.

The company's upcoming dividend is JP¥40.00 a share, following on from the last 12 months, when the company distributed a total of JP¥60.00 per share to shareholders. Based on the last year's worth of payments, Nippon Concept stock has a trailing yield of around 3.3% on the current share price of JP¥1828.00. If you buy this business for its dividend, you should have an idea of whether Nippon Concept's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Nippon Concept

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Nippon Concept is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 28% 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.

Click here to see how much of its profit Nippon Concept 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Nippon Concept, with earnings per share up 6.1% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Nippon Concept has lifted its dividend by approximately 20% 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

Should investors buy Nippon Concept for the upcoming dividend? Earnings per share growth has been growing somewhat, and Nippon Concept is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Nippon Concept is halfway there. It's a promising combination that should mark this company worthy of closer attention.

Curious about whether Nippon Concept has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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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.