North Pacific BankLtd (TSE:8524) Is Paying Out A Larger Dividend Than Last Year

The board of North Pacific Bank,Ltd. (TSE:8524) has announced that it will be paying its dividend of ¥9.50 on the 27th of June, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for North Pacific BankLtd

North Pacific BankLtd's Dividend Forecasted To Be Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

North Pacific BankLtd has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 29%, which means that North Pacific BankLtd would be able to pay its last dividend without pressure on the balance sheet.

Over the next year, EPS is forecast to expand by 22.0%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 33% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥7.00 in 2015 to the most recent total annual payment of ¥19.00. This means that it has been growing its distributions at 11% per annum over that time. North Pacific BankLtd has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that North Pacific BankLtd has grown earnings per share at 7.9% per year over the past five years. North Pacific BankLtd definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On North Pacific BankLtd's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for North Pacific BankLtd that investors need to be conscious of moving forward. Is North Pacific BankLtd not quite the opportunity you were looking for? Why not check out our selection of top 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.