Bando Chemical Industries (TSE:5195) Will Pay A Dividend Of ¥40.00

Bando Chemical Industries, Ltd. (TSE:5195) will pay a dividend of ¥40.00 on the 25th of June. This will take the annual payment to 4.0% of the stock price, which is above what most companies in the industry pay.

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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 108% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 37%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 23.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 100%, which probably can't continue without putting some pressure on the balance sheet.

See our latest analysis for Bando Chemical Industries

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend 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. Bando Chemical Industries 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.

Bando Chemical Industries Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Bando Chemical Industries has been growing its earnings per share at 11% a 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.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. We don't think Bando Chemical Industries is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Bando Chemical Industries that investors should know about before committing capital to this stock. 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.