Mitsubishi Pencil (TSE:7976) Has Announced That It Will Be Increasing Its Dividend To ¥23.00

Mitsubishi Pencil Co., Ltd. (TSE:7976) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of March to ¥23.00. This makes the dividend yield about the same as the industry average at 1.7%.

See our latest analysis for Mitsubishi Pencil

Mitsubishi Pencil's Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Mitsubishi Pencil was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 6.7% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 25%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Mitsubishi Pencil Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥14.50 in 2014, and the most recent fiscal year payment was ¥44.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Mitsubishi Pencil has seen EPS rising for the last five years, at 16% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Mitsubishi Pencil's prospects of growing its dividend payments in the future.

We Really Like Mitsubishi Pencil's Dividend

Overall, a dividend increase is always good, and we think that Mitsubishi Pencil is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

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. Case in point: We've spotted 3 warning signs for Mitsubishi Pencil (of which 1 is concerning!) 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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