Chuetsu Pulp & Paper (TSE:3877) Will Pay A Dividend Of ¥35.00

Chuetsu Pulp & Paper Co., Ltd.'s (TSE:3877) investors are due to receive a payment of ¥35.00 per share on 27th of June. This will take the annual payment to 4.6% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Chuetsu Pulp & Paper

Chuetsu Pulp & Paper's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Chuetsu Pulp & Paper's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 13.4% 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 25% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ¥40.00 in 2015 to the most recent total annual payment of ¥70.00. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Chuetsu Pulp & Paper might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Chuetsu Pulp & Paper has grown earnings per share at 13% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Chuetsu Pulp & Paper's prospects of growing its dividend payments in the future.

We Really Like Chuetsu Pulp & Paper's Dividend

Overall, a dividend increase is always good, and we think that Chuetsu Pulp & Paper is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 4 warning signs for Chuetsu Pulp & Paper that investors need to be conscious of moving forward. Is Chuetsu Pulp & Paper not quite the opportunity you were looking for? Why not check out our selection of top 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.