Hokuetsu Industries' (TSE:6364) Dividend Will Be ¥37.00

The board of Hokuetsu Industries Co., Ltd. (TSE:6364) has announced that it will pay a dividend on the 27th of June, with investors receiving ¥37.00 per share. This makes the dividend yield 3.2%, which will augment investor returns quite nicely.

See our latest analysis for Hokuetsu Industries

Hokuetsu Industries' Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Hokuetsu Industries was paying a whopping 15,847% as a dividend, but this only made up 23% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

The next year is set to see EPS grow by 8.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was ¥15.00, compared to the most recent full-year payment of ¥57.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. 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.

Hokuetsu Industries May Find It Hard To Grow The Dividend

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. However, Hokuetsu Industries has only grown its earnings per share at 4.4% per annum over the past five years. While growth may be thin on the ground, Hokuetsu Industries could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hokuetsu Industries' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Hokuetsu Industries is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Hokuetsu Industries that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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