Income Investors Should Know That Nakanishi Inc. (TSE:7716) Goes Ex-Dividend Soon

Readers hoping to buy Nakanishi Inc. (TSE:7716) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase Nakanishi's shares before the 29th of December in order to be eligible for the dividend, which will be paid on the 24th of March.

The company's next dividend payment will be JP¥28.00 per share, and in the last 12 months, the company paid a total of JP¥56.00 per share. Calculating the last year's worth of payments shows that Nakanishi has a trailing yield of 2.9% on the current share price of JP¥1963.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. Nakanishi is paying out an acceptable 65% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Nakanishi generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 45% 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.

Check out our latest analysis for Nakanishi

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

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Nakanishi's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nakanishi has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is Nakanishi an attractive dividend stock, or better left on the shelf? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Nakanishi doesn't stand out from a dividend perspective. To summarise, Nakanishi looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you want to look further into Nakanishi, it's worth knowing the risks this business faces. For example - Nakanishi 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.