Nihon Kohden (TSE:6849) Is Paying Out A Dividend Of ¥16.00

The board of Nihon Kohden Corporation (TSE:6849) has announced that it will pay a dividend on the 27th of June, with investors receiving ¥16.00 per share. Based on this payment, the dividend yield on the company's stock will be 1.4%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Nihon Kohden

Nihon Kohden's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Nihon Kohden's dividend made up quite a large proportion of earnings but only 65% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 20.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Nihon Kohden Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from ¥20.00 total annually to ¥31.00. This implies that the company grew its distributions at a yearly rate of about 4.5% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. In the last five years, Nihon Kohden's earnings per share has shrunk at approximately 2.7% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

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. For example, we've picked out 2 warning signs for Nihon Kohden that investors should know about before committing capital to this stock. 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.