Nabtesco (TSE:6268) Is Paying Out A Dividend Of ¥40.00

Nabtesco Corporation's (TSE:6268) investors are due to receive a payment of ¥40.00 per share on 1st of September. This makes the dividend yield 3.6%, which will augment investor returns quite nicely.

We've discovered 1 warning sign about Nabtesco. View them for free.

Nabtesco's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Nabtesco was paying out quite a large proportion of both earnings and cash flow, with the dividend being 131% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 16.1%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Check out our latest analysis for Nabtesco

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was ¥40.00, compared to the most recent full-year payment of ¥80.00. This means that it has been growing its distributions at 7.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nabtesco's earnings per share has shrunk at 10% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Nabtesco that investors need to be conscious of moving forward. Is Nabtesco not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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