Tokushu Tokai Paper's (TSE:3708) Dividend Will Be Increased To ¥65.00

Tokushu Tokai Paper Co., Ltd. (TSE:3708) will increase its dividend from last year's comparable payment on the 5th of December to ¥65.00. This makes the dividend yield 3.3%, which is above the industry average.

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Tokushu Tokai Paper's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Tokushu Tokai Paper's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 3.1% if recent trends continue. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Tokushu Tokai Paper

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥50.00 in 2015, and the most recent fiscal year payment was ¥130.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Tokushu Tokai Paper May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Tokushu Tokai Paper has only grown its earnings per share at 3.1% 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 Tokushu Tokai Paper's Dividend

Overall, we always like to see the dividend being raised, but we don't think Tokushu Tokai Paper will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Tokushu Tokai Paper is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Tokushu Tokai Paper has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Tokushu Tokai Paper not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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