Nippon Thompson (TSE:6480) Has Announced That It Will Be Increasing Its Dividend To ¥13.00

The board of Nippon Thompson Co., Ltd. (TSE:6480) has announced that it will be paying its dividend of ¥13.00 on the 9th of December, an increased payment from last year's comparable dividend. This will take the annual payment to 4.7% of the stock price, which is above what most companies in the industry pay.

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Estimates Indicate Nippon Thompson's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Nippon Thompson's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 47.4% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 113%, which is a bit high and could start applying pressure to the balance sheet.

View our latest analysis for Nippon Thompson

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. Since 2015, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥26.00. This implies that the company grew its distributions at a yearly rate of about 10% 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nippon Thompson has seen EPS rising for the last five years, at 18% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

Our Thoughts On Nippon Thompson's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Nippon Thompson 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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