Nihon Seiko Co., Ltd. (TSE:5729) Passed Our Checks, And It's About To Pay A JP¥30.00 Dividend
It looks like Nihon Seiko Co., Ltd. (TSE:5729) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a 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. Meaning, you will need to purchase Nihon Seiko's shares before the 29th of September to receive the dividend, which will be paid on the 2nd of December.
The company's next dividend payment will be JP¥30.00 per share, on the back of last year when the company paid a total of JP¥115 to shareholders. Based on the last year's worth of payments, Nihon Seiko has a trailing yield of 6.8% on the current stock price of JP¥1689.00. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Nihon Seiko paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Nihon Seiko generated enough free cash flow to afford its dividend. The good news is it paid out just 12% of its free cash flow in the last year.
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.
View our latest analysis for Nihon Seiko
Click here to see how much of its profit Nihon Seiko paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Nihon Seiko's earnings have been skyrocketing, up 26% per annum for the past five years. Nihon Seiko is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Nihon Seiko has lifted its dividend by approximately 25% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Final Takeaway
Is Nihon Seiko an attractive dividend stock, or better left on the shelf? It's great that Nihon Seiko is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.
So while Nihon Seiko looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Nihon Seiko has 2 warning signs we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.