Nippon Tungsten (TSE:6998) Has Announced A Dividend Of ¥25.00

Nippon Tungsten Co., Ltd.'s (TSE:6998) investors are due to receive a payment of ¥25.00 per share on 8th of December. This makes the dividend yield 3.6%, which will augment investor returns quite nicely.

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Nippon Tungsten'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. Prior to this announcement, Nippon Tungsten's dividend was only 36% of earnings, however it was paying out 255% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 4.2% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Nippon Tungsten

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 ¥20.00 in 2015 to the most recent total annual payment of ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Nippon Tungsten May Find It Hard To Grow The Dividend

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. However, Nippon Tungsten has only grown its earnings per share at 4.2% per annum over the past five years. While EPS growth is quite low, Nippon Tungsten has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Nippon Tungsten 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.