Nippon SeisenLtd (TSE:5659) Will Pay A Dividend Of ¥23.00

The board of Nippon Seisen Co.,Ltd. (TSE:5659) has announced that it will pay a dividend of ¥23.00 per share on the 4th of December. The dividend yield will be 4.2% based on this payment which is still above the industry average.

View our latest analysis for Nippon SeisenLtd

Nippon SeisenLtd's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Nippon SeisenLtd's profits didn't cover the dividend, but the company was generating enough cash instead. 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. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 168% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥10.00 in 2014 to the most recent total annual payment of ¥46.00. This means that it has been growing its distributions at 16% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Nippon SeisenLtd has impressed us by growing EPS at 6.4% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Nippon SeisenLtd that investors need to be conscious of moving forward. 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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