Mitsubishi Paper Mills' (TSE:3864) Dividend Will Be Increased To ¥15.00

Mitsubishi Paper Mills Limited's (TSE:3864) periodic dividend will be increasing on the 10th of June to ¥15.00, with investors receiving 50% more than last year's ¥10.00. Although the dividend is now higher, the yield is only 1.6%, which is below the industry average.

Check out our latest analysis for Mitsubishi Paper Mills

Mitsubishi Paper Mills' Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Mitsubishi Paper Mills' 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 could rise by 20.5% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 8.5% by next year, which we think can be pretty sustainable going forward.

Mitsubishi Paper Mills Doesn't Have A Long Payment History

Mitsubishi Paper Mills' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 7 years was ¥5.00 in 2018, and the most recent fiscal year payment was ¥10.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Mitsubishi Paper Mills has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Mitsubishi Paper Mills has grown earnings per share at 21% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Mitsubishi Paper Mills' Dividend

Overall, a dividend increase is always good, and we think that Mitsubishi Paper Mills is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Mitsubishi Paper Mills (of which 1 can't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.