Morinaga Milk Industry (TSE:2264) Has Announced A Dividend Of ¥45.00

The board of Morinaga Milk Industry Co., Ltd. (TSE:2264) has announced that it will pay a dividend on the 5th of December, with investors receiving ¥45.00 per share. This means the annual payment is 2.6% of the current stock price, which is above the average for the industry.

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Over the next year, EPS is forecast to expand by 27.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 141%, which is a bit high and could start applying pressure to the balance sheet.

See our latest analysis for Morinaga Milk Industry

Morinaga Milk Industry Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was ¥17.50, compared to the most recent full-year payment of ¥93.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Morinaga Milk Industry's earnings per share has shrunk at 21% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Morinaga Milk Industry (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.