Nippon Densetsu Kogyo (TSE:1950) Has Announced That It Will Be Increasing Its Dividend To ¥64.00

Nippon Densetsu Kogyo Co., Ltd. (TSE:1950) will increase its dividend from last year's comparable payment on the 24th of June to ¥64.00. Despite this raise, the dividend yield of 1.9% is only a modest boost to shareholder returns.

Check out our latest analysis for Nippon Densetsu Kogyo

Nippon Densetsu Kogyo's Projected Earnings Seem Likely To Cover Future 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. Nippon Densetsu Kogyo is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 4.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nippon Densetsu Kogyo Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from ¥15.00 total annually to ¥42.00. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Although it's important to note that Nippon Densetsu Kogyo's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On Nippon Densetsu Kogyo's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Nippon Densetsu Kogyo 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Nippon Densetsu Kogyo 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.