NHK Spring's (TSE:5991) Dividend Will Be Increased To ¥33.00

NHK Spring Co., Ltd. (TSE:5991) will increase its dividend from last year's comparable payment on the 26th of June to ¥33.00. This will take the dividend yield to an attractive 3.7%, providing a nice boost to shareholder returns.

View our latest analysis for NHK Spring

NHK Spring's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, NHK Spring was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

Looking forward, earnings per share is forecast to fall by 0.09% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 30%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ¥20.00 total annually to ¥66.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that NHK Spring has grown earnings per share at 43% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think NHK Spring will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments NHK Spring has been making. We don't think NHK Spring is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for NHK Spring 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.

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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.