NS Tool (TSE:6157) Will Pay A Dividend Of ¥15.00

The board of NS Tool Co., Ltd. (TSE:6157) has announced that it will pay a dividend of ¥15.00 per share on the 2nd of December. This makes the dividend yield 3.9%, which will augment investor returns quite nicely.

View our latest analysis for NS Tool

NS Tool's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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. If the dividend continues along recent trends, we estimate the payout ratio could be 61%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut 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. NS Tool has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Is Doubtful

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. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On NS Tool's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about NS Tool's payments, as there could be some issues with sustaining them into the future. 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. We don't think NS Tool is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for NS Tool (of which 1 is concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.