Kao (TSE:4452) Is Due To Pay A Dividend Of ¥76.00

The board of Kao Corporation (TSE:4452) has announced that it will pay a dividend of ¥76.00 per share on the 25th of March. Based on this payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.

View our latest analysis for Kao

Kao's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 149% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 50%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 15.7% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 94% which is a bit high but can definitely be sustainable.

Kao Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of ¥64.00 in 2014 to the most recent total annual payment of ¥152.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.0% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Kao's EPS has fallen by approximately 13% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Kao's Dividend

Overall, we always like to see the dividend being raised, but we don't think Kao will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 2 warning signs for Kao that investors need to be conscious of moving forward. Is Kao not quite the opportunity you were looking for? Why not check out our selection of top 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.