Nikkato (TSE:5367) Will Pay A Dividend Of ¥11.00

Nikkato Corporation (TSE:5367) has announced that it will pay a dividend of ¥11.00 per share on the 24th of June. The yield is still above the industry average at 4.0%.

View our latest analysis for Nikkato

Nikkato's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Nikkato's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

If the trend of the last few years continues, EPS will grow by 0.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nikkato's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2022, the annual payment back then was ¥24.00, compared to the most recent full-year payment of ¥21.00. Doing the maths, this is a decline of about 6.5% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend's Growth Prospects Are Limited

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. However, Nikkato's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company has been growing at a pretty soft 0.9% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into 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. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Nikkato (1 is potentially serious!) 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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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.