Shinnihonseiyaku's (TSE:4931) Dividend Will Be Increased To ¥45.00

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 ¥45.00. This makes the dividend yield about the same as the industry average at 1.9%.

See our latest analysis for Shinnihonseiyaku

Shinnihonseiyaku's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Shinnihonseiyaku's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 5.6%. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.

Shinnihonseiyaku Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of ¥28.00 in 2020 to the most recent total annual payment of ¥35.00. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Shinnihonseiyaku to be a consistent dividend paying stock.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, Shinnihonseiyaku has only grown its earnings per share at 2.1% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Shinnihonseiyaku's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Shinnihonseiyaku that investors should know about before committing capital to this stock. Is Shinnihonseiyaku not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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