Nachi-Fujikoshi's (TSE:6474) Dividend Will Be Reduced To ¥100.00

Nachi-Fujikoshi Corp. (TSE:6474) is reducing its dividend from last year's comparable payment to ¥100.00 on the 28th of February. However, the dividend yield of 3.3% is still a decent boost to shareholder returns.

View our latest analysis for Nachi-Fujikoshi

Nachi-Fujikoshi's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 102% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 32%. 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.

The next year is set to see EPS grow by 30.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 73% which would be quite comfortable going to take the dividend forward.

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 ¥60.00, compared to the most recent full-year payment of ¥100.00. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Nachi-Fujikoshi's EPS has declined at around 21% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Nachi-Fujikoshi that you should be aware of before investing. Is Nachi-Fujikoshi not quite the opportunity you were looking for? Why not check out our selection of top 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.