Nikkato (TSE:5367) Is Paying Out Less In Dividends Than Last Year

Nikkato Corporation's (TSE:5367) dividend is being reduced from last year's payment covering the same period to ¥10.00 on the 2nd of December. The dividend yield of 3.7% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Nikkato

Nikkato's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Nikkato's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS could expand by 0.9% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nikkato Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Although it's important to note that Nikkato's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 0.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

Even though the dividend was cut this year, we think Nikkato has the ability to make consistent payments in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Nikkato (1 is a bit concerning!) that you should be aware of before investing. Is Nikkato not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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