Tohoku Chemical (TSE:7446) Has Announced That Its Dividend Will Be Reduced To ¥95.00

Tohoku Chemical Co., Ltd. (TSE:7446) is reducing its dividend from last year's comparable payment to ¥95.00 on the 23rd of December. However, the dividend yield of 2.5% still remains in a typical range for the industry.

View our latest analysis for Tohoku Chemical

Tohoku Chemical's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Tohoku Chemical was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 36.4% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.

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. Since 2014, the annual payment back then was ¥75.00, compared to the most recent full-year payment of ¥95.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Tohoku Chemical has impressed us by growing EPS at 36% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Tohoku Chemical Looks Like A Great Dividend Stock

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Tohoku Chemical does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Tohoku Chemical 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.

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