Trusco Nakayama (TSE:9830) Will Pay A Dividend Of ¥24.00

The board of Trusco Nakayama Corporation (TSE:9830) has announced that it will pay a dividend on the 5th of March, with investors receiving ¥24.00 per share. Based on this payment, the dividend yield for the company will be 2.4%, which is fairly typical for the industry.

See our latest analysis for Trusco Nakayama

Trusco Nakayama's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Trusco Nakayama's dividend was only 23% of earnings, however it was paying out 192% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 11.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

Trusco Nakayama's Dividend Has Lacked Consistency

Trusco Nakayama has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from ¥31.25 total annually to ¥49.00. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Trusco Nakayama Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Trusco Nakayama has grown earnings per share at 6.4% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Trusco Nakayama's Dividend

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. We don't think Trusco Nakayama is a great stock to add to your portfolio if income is your focus.

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 1 warning sign for Trusco Nakayama 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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