Kadoya Sesame Mills (TSE:2612) Is Reducing Its Dividend To ¥85.00

Kadoya Sesame Mills Incorporated (TSE:2612) is reducing its dividend from last year's comparable payment to ¥85.00 on the 30th of June. The dividend yield of 2.4% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Kadoya Sesame Mills

Kadoya Sesame Mills' Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Kadoya Sesame Mills' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

EPS is set to fall by 1.8% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 34%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Kadoya Sesame Mills' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of ¥150.00 in 2017 to the most recent total annual payment of ¥85.00. The dividend has shrunk at around 7.8% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Kadoya Sesame Mills May Find It Hard To Grow The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. However, Kadoya Sesame Mills' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Kadoya Sesame Mills' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Kadoya Sesame Mills is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Kadoya Sesame Mills (1 is significant!) that you should be aware of before investing. 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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