Income Investors Should Know That Nihon Shokuhin Kako Co., Ltd. (TSE:2892) Goes Ex-Dividend Soon

Readers hoping to buy Nihon Shokuhin Kako Co., Ltd. (TSE:2892) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Nihon Shokuhin Kako's shares before the 29th of September to receive the dividend, which will be paid on the 7th of December.

The company's upcoming dividend is JP¥75.00 a share, following on from the last 12 months, when the company distributed a total of JP¥150 per share to shareholders. Looking at the last 12 months of distributions, Nihon Shokuhin Kako has a trailing yield of approximately 3.1% on its current stock price of JP¥4830.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Nihon Shokuhin Kako paid out 56% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

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 Nihon Shokuhin Kako

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's vaguely disappointing to see earnings per share declined -3.2% on last year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nihon Shokuhin Kako has delivered an average of 16% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is Nihon Shokuhin Kako an attractive dividend stock, or better left on the shelf? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. All things considered, we are not particularly enthused about Nihon Shokuhin Kako from a dividend perspective.

Want to learn more about Nihon Shokuhin Kako? Here's a visualisation of its historical rate of 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.