NEC Capital Solutions' (TSE:8793) Dividend Will Be ¥75.00

The board of NEC Capital Solutions Limited (TSE:8793) has announced that it will pay a dividend of ¥75.00 per share on the 9th of June. This takes the dividend yield to 3.8%, which shareholders will be pleased with.

See our latest analysis for NEC Capital Solutions

NEC Capital Solutions' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, NEC Capital Solutions' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 3.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from ¥44.00 total annually to ¥150.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

NEC Capital Solutions May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 3.8% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, NEC Capital Solutions could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, we always like to see the dividend being raised, but we don't think NEC Capital Solutions will make a great income stock. While NEC Capital Solutions is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for NEC Capital Solutions you should be aware of, and 1 of them doesn't sit too well with us. 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.