Bando Chemical Industries' (TSE:5195) Dividend Will Be Increased To ¥40.00

Bando Chemical Industries, Ltd. (TSE:5195) will increase its dividend from last year's comparable payment on the 2nd of December to ¥40.00. This takes the dividend yield to 4.7%, which shareholders will be pleased with.

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Estimates Indicate Bando Chemical Industries' Could Struggle to Maintain Dividend Payments In The Future

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Bando Chemical Industries' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 31.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 186%, which probably can't continue without putting some pressure on the balance sheet.

Check out our latest analysis for Bando Chemical Industries

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥20.00 in 2015, and the most recent fiscal year payment was ¥80.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. 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.

Bando Chemical Industries' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Bando Chemical Industries has impressed us by growing EPS at 19% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

Our Thoughts On Bando Chemical Industries' Dividend

Overall, we always like to see the dividend being raised, but we don't think Bando Chemical Industries will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for Bando Chemical Industries that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.