Heiwa PaperLtd (TSE:9929) Will Pay A Dividend Of ¥6.00

The board of Heiwa Paper Co.,Ltd. (TSE:9929) has announced that it will pay a dividend of ¥6.00 per share on the 1st of July. This payment means that the dividend yield will be 2.6%, which is around the industry average.

View our latest analysis for Heiwa PaperLtd

Heiwa PaperLtd's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Heiwa PaperLtd's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 203% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

EPS is set to fall by 12.3% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 83%, which is definitely on the higher side.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥12.00. This works out to be a compound annual growth rate (CAGR) of approximately 1.8% a year over that time. 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 Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Heiwa PaperLtd's EPS has declined at around 12% a year. 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.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Heiwa PaperLtd is earning enough to cover the payments, the cash flows are lacking. We don't think Heiwa PaperLtd is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 3 warning signs for Heiwa PaperLtd that investors need to be conscious of moving forward. Is Heiwa PaperLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.