Nissin Foods HoldingsLtd (TSE:2897) Will Pay A Dividend Of ¥35.00

Nissin Foods Holdings Co.,Ltd. (TSE:2897) has announced that it will pay a dividend of ¥35.00 per share on the 1st of December. This means the annual payment is 2.5% of the current stock price, which is above the average for the industry.

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Nissin Foods HoldingsLtd'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. Prior to this announcement, Nissin Foods HoldingsLtd'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.

The next year is set to see EPS grow by 8.0%. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Nissin Foods HoldingsLtd

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥26.67 in 2015 to the most recent total annual payment of ¥70.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Nissin Foods HoldingsLtd's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nissin Foods HoldingsLtd has seen EPS rising for the last five years, at 9.0% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Nissin Foods HoldingsLtd's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Nissin Foods HoldingsLtd is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Nissin Foods HoldingsLtd 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.