NS Tool (TSE:6157) Is Paying Out A Dividend Of ¥15.00

NS Tool Co., Ltd.'s (TSE:6157) investors are due to receive a payment of ¥15.00 per share on 2nd of December. The dividend yield will be 4.0% based on this payment which is still above the industry average.

Check out our latest analysis for NS Tool

NS Tool's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by NS Tool's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to fall by 7.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 61%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 dividend has gone from an annual total of ¥5.00 in 2014 to the most recent total annual payment of ¥30.00. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Come By

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's not great to see that NS Tool's earnings per share has fallen at approximately 7.2% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On NS Tool's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, NS Tool has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.