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

The board of NEC Capital Solutions Limited (TSE:8793) has announced that it will be paying its dividend of ¥75.00 on the 9th of December, an increased payment from last year's comparable dividend. This takes the annual payment to 3.6% of the current stock price, which is about average for the industry.

View our latest analysis for NEC Capital Solutions

NEC Capital Solutions' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, NEC Capital Solutions was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 1.9% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 46% by next year, which is in a pretty sustainable range.

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 annual payment back then was ¥44.00, compared to the most recent full-year payment of ¥150.00. This means that it has been growing its distributions at 13% per annum over that time. NEC Capital Solutions has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

NEC Capital Solutions May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. NEC Capital Solutions hasn't seen much change in its earnings per share over the last five years. Growth of 1.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On NEC Capital Solutions' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While NEC Capital Solutions is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for NEC Capital Solutions (of which 1 is potentially serious!) you should know about. Is NEC Capital Solutions not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com