Nippon Sharyo (TSE:7102) Will Pay A Dividend Of ¥20.00

The board of Nippon Sharyo, Ltd. (TSE:7102) has announced that it will pay a dividend of ¥20.00 per share on the 2nd of December. The payment will take the dividend yield to 1.9%, which is in line with the average for the industry.

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Nippon Sharyo's Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Nippon Sharyo is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Unless the company can turn things around, EPS could fall by 4.1% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 9.2%, which is definitely feasible to continue.

See our latest analysis for Nippon Sharyo

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥50.00, compared to the most recent full-year payment of ¥40.00. The dividend has shrunk at around 2.2% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nippon Sharyo has seen earnings per share falling at 4.1% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Nippon Sharyo is a great stock to add to your portfolio if income is your focus.

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. For example, we've identified 2 warning signs for Nippon Sharyo (1 is a bit unpleasant!) 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.

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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.