Chuetsu Pulp & Paper's (TSE:3877) Dividend Will Be ¥30.00

Chuetsu Pulp & Paper Co., Ltd.'s (TSE:3877) investors are due to receive a payment of ¥30.00 per share on 1st of July. The dividend yield will be 3.1% based on this payment which is still above the industry average.

View our latest analysis for Chuetsu Pulp & Paper

Chuetsu Pulp & Paper's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Chuetsu Pulp & Paper was paying only paying out a fraction of earnings, but the payment was a massive 3,532% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 44.4% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 10%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from ¥40.00 total annually to ¥60.00. This means that it has been growing its distributions at 4.1% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Chuetsu Pulp & Paper has grown earnings per share at 44% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Chuetsu Pulp & Paper's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Chuetsu Pulp & Paper's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Chuetsu Pulp & Paper (of which 1 is concerning!) you should know about. 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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