You should purchase Nippon Antenna Co., Ltd. (TYO: 6930) For his dividend?

Dividend-paying stocks such as Nippon Antenna Co., Ltd. (TYO: 6930) tend to be popular with investors, and for good reason – some research suggests that a significant portion of all stock market returns come from reinvested dividends. If you want to live off the income from dividends, it is important that your investments are much more rigorous than the average punter.

While Nippon AntennaLtd’s dividend yield isn’t the highest at 2.1%, we think the long payment history is quite interesting. Whenever you buy stocks for their dividends, be sure to go through the following tests to see if the dividend looks sustainable.

Click on the interactive chart for our full dividend analysis

JASDAQ: 6930 historic dividend December 25, 2020

Payout percentages

Dividends are usually paid out of corporate profits. When a company pays more than it makes, dividends can become unsustainable – hardly an ideal situation. Hence, we should always examine whether a company can afford its dividend, measured as a percentage of a company’s net income after taxes. If we look at the data, we can see that 72% of Nippon AntennaLtd’s profits over the past 12 months have been paid out as dividends. This is a pretty normal payout ratio for most companies. It allows a higher dividend to be paid to shareholders, but limits the amount of capital left in the business – which can be good or bad.

Aside from comparing dividends against earnings, let’s check if the company has generated enough cash to pay its dividend. Nippon AntennaLtd paid a conservative 44% of its free cash flow as dividends last year. It’s good to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend will be sustainable as long as earnings don’t fall steeply.

With a strong net cash balance, Nippon AntennaLtd investors don’t need to worry too much in the short term from a dividend perspective.

Get our latest analysis of Nippon AntennaLtd’s financial position here.

Dividend volatility

One of the biggest risks of relying on dividend income is a company’s potential to struggle financially and lower its dividend. Not only will your income be reduced, but the value of your investment will decrease as well. For the purposes of this article, we’re only examining the past decade of Nippon AntennaLtd’s dividend payments. Dividend payments have decreased at least once in the past 10 years. For the past 10 years, the first annual payment in 2010 was 25.0 yen, compared to 21.0 yen the previous year. The dividend fell by around 1.7% per year during this period. Nippon AntennaLtd’s dividend has been cut sharply at least once, so it hasn’t dropped 1.7% every year. However, this is a decent approximation of long-term change.

A shrinking dividend over a 10 year period isn’t ideal, and we would be concerned about investing in a dividend stock that doesn’t have a solid record of growing dividends per share.

Dividend growth potential

Given that the dividend has been cut in the past, we need to consider whether earnings will rise and whether that could lead to higher dividends in the future. Nippon AntennaLtd has increased earnings per share by 9.6% per year over the past five years. The rate at which profits have grown is pretty decent. By paying out more than half of its profits as dividends, the company strikes a fair balance between reinvestment and returns for shareholders.

Conclusion

Dividend investors should always want to know if a) a company’s dividends are affordable, b) there is a track record of consistent payments, and c) if the dividend can grow. First, we believe that Nippon AntennaLtd has an acceptable payout ratio and that its dividend is well covered by cash flow. Earnings growth was good next, but unfortunately the dividend has been cut at least once in the past. Overall, we think Nippon AntennaLtd is an interesting dividend stock, although it could be better.

Companies with stable dividend policies are likely to enjoy greater investor interest than companies that suffer from a more inconsistent approach. However, there are other considerations for investors to consider when analyzing stock performance. For example we chose 2 warning signs for Nippon AntennaLtd Investors should know this before investing capital in this stock.

Are you looking for high yield dividend ideas? Try our curated list of dividend stocks that yield over 3%.

Funded
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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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