Shinnihonseiyaku (TSE:4931) Is Increasing Its Dividend To ¥35.00

Shinnihonseiyaku Co., Ltd. (TSE:4931) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of December to ¥35.00. This makes the dividend yield about the same as the industry average at 2.0%.

View our latest analysis for Shinnihonseiyaku

Shinnihonseiyaku's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, Shinnihonseiyaku's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 4.2% over the next year. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

Shinnihonseiyaku Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. The annual payment during the last 4 years was ¥28.00 in 2020, and the most recent fiscal year payment was ¥35.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.7% a year over that time. Shinnihonseiyaku has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

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. Earnings per share has been crawling upwards at 2.8% per year. While EPS growth is quite low, Shinnihonseiyaku has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Shinnihonseiyaku that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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