NIHON CHOUZAILtd (TSE:3341) Will Pay A Dividend Of ¥12.50

The board of NIHON CHOUZAI Co.,Ltd. (TSE:3341) has announced that it will pay a dividend of ¥12.50 per share on the 6th of December. This means the dividend yield will be fairly typical at 1.7%.

View our latest analysis for NIHON CHOUZAILtd

NIHON CHOUZAILtd's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, NIHON CHOUZAILtd was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 18.9%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from ¥17.50 total annually to ¥25.00. This implies that the company grew its distributions at a yearly rate of about 3.6% 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.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. NIHON CHOUZAILtd has seen earnings per share falling at 6.9% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about NIHON CHOUZAILtd's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 NIHON CHOUZAILtd that investors need to be conscious of moving forward. 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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