Is It Smart To Buy NAK Sealing Technologies Corporation (TWSE:9942) Before It Goes Ex-Dividend?

NAK Sealing Technologies Corporation (TWSE:9942) is about to trade ex-dividend in the next three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase NAK Sealing Technologies' shares on or after the 8th of August, you won't be eligible to receive the dividend, when it is paid on the 30th of August.

The company's next dividend payment will be NT$7.00 per share, and in the last 12 months, the company paid a total of NT$7.00 per share. Based on the last year's worth of payments, NAK Sealing Technologies stock has a trailing yield of around 5.5% on the current share price of NT$127.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether NAK Sealing Technologies has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for NAK Sealing Technologies

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. NAK Sealing Technologies is paying out an acceptable 61% of its profit, a common payout level among most companies. 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 38% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that NAK Sealing Technologies's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit NAK Sealing Technologies 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. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, NAK Sealing Technologies's earnings per share have been growing at 17% a year for the past five years. NAK Sealing Technologies has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, NAK Sealing Technologies has lifted its dividend by approximately 3.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because NAK Sealing Technologies is keeping back more of its profits to grow the business.

Final Takeaway

Should investors buy NAK Sealing Technologies for the upcoming dividend? NAK Sealing Technologies's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about NAK Sealing Technologies, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks NAK Sealing Technologies is facing. For example - NAK Sealing Technologies has 1 warning sign we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com