Don't Race Out To Buy Nitto Fuji Flour Milling Co.,Ltd. (TSE:2003) Just Because It's Going Ex-Dividend
It looks like Nitto Fuji Flour Milling Co.,Ltd. (TSE:2003) is about to go ex-dividend in the next couple of days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Nitto Fuji Flour MillingLtd's shares before the 29th of September in order to receive the dividend, which the company will pay on the 2nd of December.
The company's upcoming dividend is JP¥35.00 a share, following on from the last 12 months, when the company distributed a total of JP¥70.00 per share to shareholders. Based on the last year's worth of payments, Nitto Fuji Flour MillingLtd stock has a trailing yield of around 3.7% on the current share price of JP¥1912.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. It paid out 78% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Over the last year, it paid out more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Nitto Fuji Flour MillingLtd'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.
View our latest analysis for Nitto Fuji Flour MillingLtd
Click here to see how much of its profit Nitto Fuji Flour MillingLtd paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Nitto Fuji Flour MillingLtd's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Nitto Fuji Flour MillingLtd has lifted its dividend by approximately 23% a year on average.
Final Takeaway
Should investors buy Nitto Fuji Flour MillingLtd for the upcoming dividend? Nitto Fuji Flour MillingLtd has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Nitto Fuji Flour MillingLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 2 warning signs with Nitto Fuji Flour MillingLtd (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.
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.