Heiwa PaperLtd (TSE:9929) Has Announced A Dividend Of ¥6.00

Heiwa Paper Co.,Ltd. (TSE:9929) will pay a dividend of ¥6.00 on the 27th of June. Based on this payment, the dividend yield will be 2.6%, which is fairly typical for the industry.

Check out our latest analysis for Heiwa PaperLtd

Heiwa PaperLtd's Projections Indicate Future Payments May Be Unsustainable

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, the dividend made up 99% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to fall by 9.0% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 109%, which is definitely a bit high to be sustainable going forward.

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 2015, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥12.00. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Is Doubtful

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 not great to see that Heiwa PaperLtd's earnings per share has fallen at approximately 9.0% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

We're Not Big Fans Of Heiwa PaperLtd's Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Heiwa PaperLtd make more consistent payments in the future. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Heiwa PaperLtd (1 doesn't sit too well with us!) 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.