Nissin Foods' (HKG:1475) Dividend Will Be Increased To HK$0.17

Nissin Foods Company Limited (HKG:1475) has announced that it will be increasing its dividend on the 29th of June to HK$0.17. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

Check out our latest analysis for Nissin Foods

Nissin Foods' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend was quite comfortably covered by Nissin Foods' earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 83% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 15.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 63% by next year, which is in a pretty sustainable range.

Nissin Foods Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from HK$0.073 in 2018 to the most recent annual payment of HK$0.15. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Nissin Foods has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Nissin Foods has been growing its earnings per share at 23% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On Nissin Foods' Dividend

Overall, we always like to see the dividend being raised, but we don't think Nissin Foods will make a great income stock. While Nissin Foods is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Nissin Foods that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.