Daio Paper (TSE:3880) Is Due To Pay A Dividend Of ¥7.00

The board of Daio Paper Corporation (TSE:3880) has announced that it will pay a dividend on the 27th of June, with investors receiving ¥7.00 per share. Based on this payment, the dividend yield will be 1.7%, which is lower than the average for the industry.

View our latest analysis for Daio Paper

Daio Paper's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Daio Paper's Could Struggle to Maintain Dividend Payments In The Future

Daio Paper's Future Dividends May Potentially Be At Risk

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Daio Paper is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

The next 12 months is set to see EPS grow by 109.1%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ¥8.50, compared to the most recent full-year payment of ¥14.00. This means that it has been growing its distributions at 5.1% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Daio Paper's EPS has declined at around 49% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Daio Paper's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Daio Paper that investors should take into consideration. 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.