Trusco Nakayama (TSE:9830) Is Increasing Its Dividend To ¥24.00

The board of Trusco Nakayama Corporation (TSE:9830) has announced that the dividend on 2nd of September will be increased to ¥24.00, which will be 4.3% higher than last year's payment of ¥23.00 which covered the same period. Even though the dividend went up, the yield is still quite low at only 1.9%.

View our latest analysis for Trusco Nakayama

Trusco Nakayama's Earnings Easily Cover The Distributions

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 25% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 48.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 dividend has gone from ¥20.50 total annually to ¥46.50. This means that it has been growing its distributions at 8.5% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 5.0% per year. While EPS growth is quite low, Trusco Nakayama has the option to increase the payout ratio to return more cash to shareholders.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Trusco Nakayama's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Trusco Nakayama that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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