Kuraray's (TSE:3405) Dividend Will Be ¥27.00

The board of Kuraray Co., Ltd. (TSE:3405) has announced that it will pay a dividend on the 10th of September, with investors receiving ¥27.00 per share. The dividend yield will be 3.0% based on this payment which is still above the industry average.

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Kuraray's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Kuraray's dividend made up quite a large proportion of earnings but only 26% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 26.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 63%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

See our latest analysis for Kuraray

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ¥36.00, compared to the most recent full-year payment of ¥54.00. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Kuraray Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Kuraray has been growing its earnings per share at 34% a year over the past five years. However, Kuraray isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kuraray's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Kuraray that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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