Nihon Shokuhin Kako (TSE:2892) Is Increasing Its Dividend To ¥75.00

Nihon Shokuhin Kako Co., Ltd. (TSE:2892) will increase its dividend from last year's comparable payment on the 29th of June to ¥75.00. This will take the dividend yield to an attractive 4.2%, providing a nice boost to shareholder returns.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Nihon Shokuhin Kako's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Nihon Shokuhin Kako's earnings easily covered the dividend, but free cash flows were negative. 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.

Looking forward, EPS could fall by 5.8% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 58%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Nihon Shokuhin Kako

Nihon Shokuhin Kako Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was ¥35.00 in 2015, and the most recent fiscal year payment was ¥150.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Nihon Shokuhin Kako has seen earnings per share falling at 5.8% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Nihon Shokuhin Kako that investors need to be conscious of moving forward. Is Nihon Shokuhin Kako 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.