Hokuetsu's (TSE:3865) Upcoming Dividend Will Be Larger Than Last Year's

Hokuetsu Corporation (TSE:3865) will increase its dividend from last year's comparable payment on the 4th of December to ¥11.00. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.

View our latest analysis for Hokuetsu

Hokuetsu's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Hokuetsu'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.

Looking forward, earnings per share is forecast to rise by 17.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

Hokuetsu Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥12.00, compared to the most recent full-year payment of ¥22.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Hokuetsu May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Hokuetsu hasn't seen much change in its earnings per share over the last 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.

We Really Like Hokuetsu's Dividend

Overall, a dividend increase is always good, and we think that Hokuetsu is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Hokuetsu that investors need to be conscious of moving forward. 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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