Nitto Kogyo (TSE:6651) Is Reducing Its Dividend To ¥62.00

Nitto Kogyo Corporation (TSE:6651) is reducing its dividend from last year's comparable payment to ¥62.00 on the 9th of December. The yield is still above the industry average at 3.8%.

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Nitto Kogyo's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Nitto Kogyo's dividend made up quite a large proportion of earnings but only 49% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 0.1% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 58%, which we consider to be quite comfortable, even though the current levels are slightly more elevated.

View our latest analysis for Nitto Kogyo

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥56.00 in 2015, and the most recent fiscal year payment was ¥124.00. This implies that the company grew its distributions at a yearly rate of about 8.3% 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.

We Could See Nitto Kogyo's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nitto Kogyo has seen EPS rising for the last five years, at 9.9% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Nitto Kogyo has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Is Nitto Kogyo 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.