Nitto Kogyo (TSE:6651) Will Pay A Dividend Of ¥68.00

Nitto Kogyo Corporation (TSE:6651) will pay a dividend of ¥68.00 on the 30th of June. However, the dividend yield of 4.4% is still a decent boost to shareholder returns.

View our latest analysis for Nitto Kogyo

Nitto Kogyo's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Nitto Kogyo was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to fall by 1.9% over the next year. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 53%, which is more comfortable than the current payout ratio.

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. The dividend has gone from an annual total of ¥56.00 in 2015 to the most recent total annual payment of ¥132.00. This means that it has been growing its distributions at 9.0% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Nitto Kogyo might have put its house in order since then, but we remain cautious.

Nitto Kogyo Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. 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.

Nitto Kogyo's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We don't think Nitto Kogyo 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 identified 2 warning signs for Nitto Kogyo (1 is concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.