Nippon Densetsu Kogyo's (TSE:1950) Shareholders Will Receive A Bigger Dividend Than Last Year

Nippon Densetsu Kogyo Co., Ltd. (TSE:1950) will increase its dividend from last year's comparable payment on the 24th of June to ¥50.00. Even though the dividend went up, the yield is still quite low at only 2.1%.

See our latest analysis for Nippon Densetsu Kogyo

Nippon Densetsu Kogyo's Future Dividend Projections Appear Well Covered By Earnings

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.

Looking forward, earnings per share is forecast to rise by 5.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% 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. Since 2015, the dividend has gone from ¥15.00 total annually to ¥42.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. 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

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Nippon Densetsu Kogyo hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Nippon Densetsu Kogyo's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nippon Densetsu Kogyo's payments are rock solid. 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. For instance, we've picked out 1 warning sign for Nippon Densetsu Kogyo that investors should take into consideration. Is Nippon Densetsu Kogyo 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.