Eiken Chemical (TSE:4549) Is Due To Pay A Dividend Of ¥29.00

The board of Eiken Chemical Co., Ltd. (TSE:4549) has announced that it will pay a dividend of ¥29.00 per share on the 8th of June. This takes the dividend yield to 2.3%, which shareholders will be pleased with.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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. Based on the last dividend, Eiken Chemical is earning enough to cover the payment, but then it makes up 635% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 3.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 53% by next year, which is in a pretty sustainable range.

Check out 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 dividend has gone from an annual total of ¥20.00 in 2015 to the most recent total annual payment of ¥58.00. This means that it has been growing its distributions at 11% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Eiken Chemical Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Eiken Chemical has impressed us by growing EPS at 5.5% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Eiken Chemical's payments are rock solid. While Eiken Chemical is earning enough to cover the payments, the cash flows are lacking. We don't think Eiken Chemical 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Eiken Chemical 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.

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.