Tohoku Chemical's (TSE:7446) Dividend Will Be Reduced To ¥95.00

Tohoku Chemical Co., Ltd. (TSE:7446) has announced that on 23rd of December, it will be paying a dividend of¥95.00, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 2.5%.

See our latest analysis for Tohoku Chemical

Tohoku Chemical's Earnings Easily Cover The Distributions

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.

Over the next year, EPS could expand by 36.4% if recent trends continue. 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

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥75.00 in 2014, and the most recent fiscal year payment was ¥95.00. This means that it has been growing its distributions at 2.4% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Tohoku Chemical has been growing its earnings per share at 36% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Tohoku Chemical's Dividend

Overall, we think that Tohoku Chemical could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. As an example, we've identified 3 warning signs for Tohoku Chemical that you should be aware of before investing. Is Tohoku Chemical not quite the opportunity you were looking for? Why not check out our selection of top 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com