Trusco Nakayama (TSE:9830) Has Announced That It Will Be Increasing Its Dividend To ¥24.00

Trusco Nakayama Corporation (TSE:9830) has announced that it will be increasing its periodic dividend on the 2nd of September to ¥24.00, which will be 4.3% higher than last year's comparable payment amount of ¥23.00. Although the dividend is now higher, the yield is only 2.0%, which is below the industry average.

See our latest analysis for Trusco Nakayama

Trusco Nakayama's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Trusco Nakayama was paying a whopping 182% as a dividend, but this only made up 24% of its overall earnings. 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 is forecast to expand by 48.4%. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥20.50 in 2014, and the most recent fiscal year payment was ¥46.50. This works out to be a compound annual growth rate (CAGR) of approximately 8.5% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Trusco Nakayama might have put its house in order since then, but we remain cautious.

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. Earnings has been rising at 5.0% per annum over the last five years, which admittedly is a bit slow. If Trusco Nakayama is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Trusco Nakayama's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 1 warning sign for Trusco Nakayama that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.