Idemitsu KosanLtd (TSE:5019) Will Pay A Dividend Of ¥18.00

Idemitsu Kosan Co.,Ltd. (TSE:5019) has announced that it will pay a dividend of ¥18.00 per share on the 8th of December. This payment means that the dividend yield will be 3.6%, which is around the industry average.

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Idemitsu KosanLtd's Projections Indicate Future Payments May Be Unsustainable

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the company was paying out 328% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 12%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

The next 12 months is set to see EPS grow by 34.0%. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

View our latest analysis for Idemitsu KosanLtd

Idemitsu KosanLtd Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of ¥10.00 in 2015 to the most recent total annual payment of ¥36.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. 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.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Idemitsu KosanLtd has been growing its earnings per share at 16% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Our Thoughts On Idemitsu KosanLtd's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 4 warning signs for Idemitsu KosanLtd 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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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.