Nichiha (TSE:7943) Will Pay A Dividend Of ¥57.00

The board of Nichiha Corporation (TSE:7943) has announced that it will pay a dividend on the 2nd of December, with investors receiving ¥57.00 per share. The dividend yield will be 3.7% based on this payment which is still above the industry average.

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Nichiha's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Nichiha's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 31.5%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 122%, which probably can't continue without putting some pressure on the balance sheet.

View our latest analysis for Nichiha

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from ¥25.00 total annually to ¥114.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nichiha's EPS has fallen by approximately 23% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Nichiha's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Nichiha's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 2 warning signs for Nichiha that investors should take into consideration. 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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