Tenox's (TSE:1905) Dividend Will Be Increased To ¥21.00

Tenox Corporation (TSE:1905) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of December to ¥21.00. This will take the annual payment to 3.8% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Tenox

Tenox Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Tenox was paying out 157% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Looking forward, EPS could fall by 22.3% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 225%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥12.00 in 2014, and the most recent fiscal year payment was ¥43.00. This means that it has been growing its distributions at 14% per annum over that time. Tenox 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.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tenox's EPS has fallen by approximately 22% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Tenox's Dividend Doesn't Look Great

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. The dividend doesn't inspire confidence that it will provide solid income in the future.

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 example, we've identified 4 warning signs for Tenox (2 are potentially serious!) that you should be aware of before investing. Is Tenox 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.