Nippon SeisenLtd (TSE:5659) Has Announced A Dividend Of ¥23.00

Nippon Seisen Co.,Ltd. (TSE:5659) will pay a dividend of ¥23.00 on the 4th of December. This means the annual payment is 4.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Nippon SeisenLtd

Nippon SeisenLtd Is Paying Out More Than It Is Earning

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 236% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 69%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share could rise by 6.4% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 168%, which probably can't continue without starting to put some pressure on the balance sheet.

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 ¥10.00 in 2014, and the most recent fiscal year payment was ¥46.00. This means that it has been growing its distributions at 16% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Nippon SeisenLtd May Have Challenges Growing The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nippon SeisenLtd has impressed us by growing EPS at 6.4% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Our Thoughts On Nippon SeisenLtd's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Nippon SeisenLtd's payments, as there could be some issues with sustaining them into the future. 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.

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. As an example, we've identified 1 warning sign for Nippon SeisenLtd that you should be aware of before investing. Is Nippon SeisenLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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