Shinnihon Corporation (TSE:1879) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of July to ¥19.00. Even though the dividend went up, the yield is still quite low at only 2.1%.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Shinnihon's stock price has increased by 49% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for Shinnihon
Shinnihon's Earnings Easily Cover The Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Shinnihon was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
If the trend of the last few years continues, EPS will grow by 3.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% by next year, which is in a pretty sustainable range.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from ¥7.00 total annually to ¥34.00. This means that it has been growing its distributions at 17% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 3.7% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Shinnihon could always pay out a higher proportion of earnings to increase shareholder returns.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Shinnihon is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Shinnihon that you should be aware of before investing. 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.
About TSE:1879
Flawless balance sheet established dividend payer.
