It Might Not Be A Great Idea To Buy Nagaileben Co., Ltd. (TSE:7447) For Its Next Dividend
Readers hoping to buy Nagaileben Co., Ltd. (TSE:7447) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Nagaileben's shares before the 28th of August in order to be eligible for the dividend, which will be paid on the 24th of November.
The company's next dividend payment will be JP¥70.00 per share. Last year, in total, the company distributed JP¥70.00 to shareholders. Calculating the last year's worth of payments shows that Nagaileben has a trailing yield of 3.9% on the current share price of JP¥1774.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Nagaileben can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Nagaileben is paying out an acceptable 71% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Nagaileben generated enough free cash flow to afford its dividend. Nagaileben paid out more free cash flow than it generated - 117%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Nagaileben does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Nagaileben paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Nagaileben's ability to maintain its dividend.
See our latest analysis for Nagaileben
Click here to see how much of its profit Nagaileben paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Nagaileben's earnings are down 4.2% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Nagaileben has lifted its dividend by approximately 3.4% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
Final Takeaway
From a dividend perspective, should investors buy or avoid Nagaileben? Nagaileben had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
So if you're still interested in Nagaileben despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Nagaileben has 1 warning sign we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.