Nihon Shokuhin Kako (TSE:2892) Is Paying Out A Larger Dividend Than Last Year

Nihon Shokuhin Kako Co., Ltd.'s (TSE:2892) dividend will be increasing from last year's payment of the same period to ¥70.00 on 5th of December. This makes the dividend yield 3.9%, which is above the industry average.

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Nihon Shokuhin Kako's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Nihon Shokuhin Kako is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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.

EPS is set to fall by 4.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 45%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Check out 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. Since 2015, the annual payment back then was ¥35.00, compared to the most recent full-year payment of ¥145.00. This implies that the company grew its distributions at a yearly rate of about 15% 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.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. 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 Nihon Shokuhin Kako's EPS has declined at around 4.2% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Nihon Shokuhin Kako's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nihon Shokuhin Kako's payments are rock solid. While Nihon Shokuhin Kako is earning enough to cover the payments, the cash flows are lacking. We don't think Nihon Shokuhin Kako is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing 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. 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.