Mitsubishi Pencil (TSE:7976) Has Announced A Dividend Of ¥24.00

The board of Mitsubishi Pencil Co., Ltd. (TSE:7976) has announced that it will pay a dividend of ¥24.00 per share on the 5th of September. The payment will take the dividend yield to 2.0%, which is in line with the average for the industry.

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Mitsubishi Pencil's Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Mitsubishi Pencil's dividend was only 21% of earnings, however it was paying out 106% of free cash flows. 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 fall by 0.02%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 26%, which we are pretty comfortable with and we think is feasible on an earnings basis.

View our latest analysis for Mitsubishi Pencil

Mitsubishi Pencil Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was ¥14.50 in 2015, and the most recent fiscal year payment was ¥48.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Mitsubishi Pencil has impressed us by growing EPS at 21% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Mitsubishi Pencil's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Mitsubishi Pencil's payments are rock solid. While Mitsubishi Pencil is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Mitsubishi Pencil (of which 1 is significant!) you should know about. Is Mitsubishi Pencil 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.