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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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.
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About TSE:4931
Shinnihonseiyaku
Provides cosmetics, pharmaceuticals, and health food in Japan and internationally.
Flawless balance sheet and undervalued.
