Nidec (TSE:6594) Is Increasing Its Dividend To ¥40.00

Nidec Corporation's (TSE:6594) dividend will be increasing from last year's payment of the same period to ¥40.00 on 3rd of June. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.

Check out our latest analysis for Nidec

Nidec's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Nidec was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 158.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nidec Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from ¥21.25 total annually to ¥80.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. It's not great to see that Nidec's earnings per share has fallen at approximately 7.6% 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. 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.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Nidec that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.