Eiken Chemical (TSE:4549) Has Announced That It Will Be Increasing Its Dividend To ¥29.00

Eiken Chemical Co., Ltd. (TSE:4549) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of December to ¥29.00. This will take the annual payment to 2.4% of the stock price, which is above what most companies in the industry pay.

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Eiken Chemical's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Eiken Chemical was paying out quite a large proportion of both earnings and cash flow, with the dividend being 290% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Earnings per share is forecast to rise by 9.8% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 80% which is a bit high but can definitely be sustainable.

See our latest analysis for Eiken Chemical

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥20.00 in 2015, and the most recent fiscal year payment was ¥58.00. This implies that the company grew its distributions at a yearly rate of about 11% 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.

Eiken Chemical May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Eiken Chemical has seen earnings per share falling at 3.6% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Eiken Chemical's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

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 instance, we've picked out 1 warning sign for Eiken Chemical that investors should take into consideration. Is Eiken Chemical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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