Nitto Kogyo's (TSE:6651) Dividend Will Be Reduced To ¥64.00

Nitto Kogyo Corporation (TSE:6651) has announced that on 9th of December, it will be paying a dividend of¥64.00, which a reduction from last year's comparable dividend. However, the dividend yield of 3.6% is still a decent boost to shareholder returns.

View our latest analysis for Nitto Kogyo

Nitto Kogyo Doesn't Earn Enough To Cover Its Payments

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 earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next 12 months is set to see EPS grow by 8.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥44.00 in 2014, and the most recent fiscal year payment was ¥128.00. This means that it has been growing its distributions at 11% per annum over that time. Nitto Kogyo has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Nitto Kogyo has grown earnings per share at 18% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Nitto Kogyo's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Nitto Kogyo that investors need to be conscious of moving forward. 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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