Nippon Densetsu Kogyo (TSE:1950) Is Increasing Its Dividend To ¥50.00

The board of Nippon Densetsu Kogyo Co., Ltd. (TSE:1950) has announced that it will be paying its dividend of ¥50.00 on the 24th of June, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.

View 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. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 4.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

Nippon Densetsu Kogyo Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of ¥15.00 in 2015 to the most recent total annual payment of ¥42.00. This means that it has been growing its distributions at 11% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Nippon Densetsu Kogyo May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Unfortunately, Nippon Densetsu Kogyo's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Nippon Densetsu Kogyo's Dividend

Overall, we always like to see the dividend being raised, but we don't think Nippon Densetsu Kogyo will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Nippon Densetsu Kogyo that investors need to be conscious of moving forward. 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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