Mitsubishi Pencil (TSE:7976) Is Due To Pay A Dividend Of ¥24.00

The board of Mitsubishi Pencil Co., Ltd. (TSE:7976) has announced that it will pay a dividend on the 5th of September, with investors receiving ¥24.00 per share. This makes the dividend yield about the same as the industry average at 2.1%.

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Mitsubishi Pencil's Payment Could Potentially Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Mitsubishi Pencil was paying a whopping 105% as a dividend, but this only made up 23% of its overall earnings. 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.

Looking forward, earnings per share is forecast to rise by 2.4% over the next year. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Mitsubishi Pencil

Mitsubishi Pencil Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of ¥14.50 in 2015 to the most recent total annual payment of ¥48.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. 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

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Mitsubishi Pencil has been growing its earnings per share at 24% a 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Mitsubishi Pencil is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Mitsubishi Pencil that investors need to be conscious of moving forward. 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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