Stock Analysis

Nippon Carbon (TSE:5302) Has Affirmed Its Dividend Of ¥100.00

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TSE:5302

The board of Nippon Carbon Co., Ltd. (TSE:5302) has announced that it will pay a dividend of ¥100.00 per share on the 29th of March. Based on this payment, the dividend yield on the company's stock will be 4.5%, which is an attractive boost to shareholder returns.

View our latest analysis for Nippon Carbon

Nippon Carbon's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Nippon Carbon's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 11.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.

TSE:5302 Historic Dividend August 26th 2024

Nippon Carbon Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥50.00 in 2014, and the most recent fiscal year payment was ¥200.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Nippon Carbon's earnings per share has shrunk at 18% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

Overall, a consistent dividend is a good thing, and we think that Nippon Carbon has the ability to continue this into the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. See if management have their own wealth at stake, by checking insider shareholdings in Nippon Carbon stock. Is Nippon Carbon 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.