Morinaga Milk Industry (TSE:2264) Has Affirmed Its Dividend Of ¥45.00

Morinaga Milk Industry Co., Ltd. (TSE:2264) has announced that it will pay a dividend of ¥45.00 per share on the 5th of December. Based on this payment, the dividend yield on the company's stock will be 2.6%, which is an attractive boost to shareholder returns.

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Morinaga Milk Industry's Future Dividends May Potentially Be At Risk

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the dividend made up 156% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Earnings per share is forecast to rise by 27.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 141%, which probably can't continue without putting some pressure on the balance sheet.

Check out our latest analysis for Morinaga Milk Industry

Morinaga Milk Industry 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 ¥17.50 in 2015 to the most recent total annual payment of ¥93.00. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. 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 Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Morinaga Milk Industry's EPS has declined at around 21% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Morinaga Milk Industry's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Morinaga Milk Industry's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Morinaga Milk Industry has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. 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.