Nac (TSE:9788) Is Paying Out A Larger Dividend Than Last Year

Nac Co., Ltd. (TSE:9788) will increase its dividend from last year's comparable payment on the 30th of June to ¥17.00. This will take the dividend yield to an attractive 3.8%, providing a nice boost to shareholder returns.

See our latest analysis for Nac

Nac's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Nac was paying out 72% of earnings, but a comparatively small 50% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share could rise by 3.7% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 73% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥18.00 in 2014, and the most recent fiscal year payment was ¥22.00. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 3.7% a year for the past five years, which isn't massive but still better than seeing them shrink. Nac's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Nac's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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 picked out 2 warning signs for Nac that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.