Chuetsu Pulp & Paper's (TSE:3877) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Chuetsu Pulp & Paper Co., Ltd. (TSE:3877) has announced that it will be paying its dividend of ¥50.00 on the 26th of June, an increased payment from last year's comparable dividend. This will take the annual payment to 3.9% of the stock price, which is above what most companies in the industry pay.

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Chuetsu Pulp & Paper's Projections Indicate Future Payments May Be Unsustainable

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Chuetsu Pulp & Paper was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Earnings per share could rise by 29.0% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 127% over the next year.

View our latest analysis for Chuetsu Pulp & Paper

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from ¥50.00 total annually to ¥80.00. This means that it has been growing its distributions at 4.8% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Chuetsu Pulp & Paper has been growing its earnings per share at 29% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Chuetsu Pulp & Paper could prove to be a strong dividend payer.

Chuetsu Pulp & Paper Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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.