Nitto Kogyo's (TSE:6651) Dividend Will Be ¥68.00

Nitto Kogyo Corporation's (TSE:6651) investors are due to receive a payment of ¥68.00 per share on 30th of June. The yield is still above the industry average at 4.6%.

Check out our latest analysis for Nitto Kogyo

Nitto Kogyo's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

Looking forward, earnings per share is forecast to rise by 0.3% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 55% which brings it into quite a comfortable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ¥44.00 in 2014 to the most recent total annual payment of ¥132.00. This means that it has been growing its distributions at 12% per annum over that time. 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.

Nitto Kogyo Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nitto Kogyo has seen EPS rising for the last five years, at 13% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

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 would be a touch cautious of relying on this stock primarily for the dividend income.

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 Nitto Kogyo that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.