Nippon Soda (TSE:4041) Has Announced A Dividend Of ¥120.00

Nippon Soda Co., Ltd. (TSE:4041) will pay a dividend of ¥120.00 on the 1st of July. The yield is still above the industry average at 4.0%.

See our latest analysis for Nippon Soda

Nippon Soda's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Nippon Soda's dividend was only 50% of earnings, however it was paying out 314% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 2.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 51% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ¥30.00, compared to the most recent full-year payment of ¥240.00. This means that it has been growing its distributions at 23% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Nippon Soda has grown earnings per share at 23% per 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 Nippon Soda could prove to be a strong dividend payer.

Our Thoughts On Nippon Soda's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Nippon Soda is earning enough to cover the payments, the cash flows are lacking. We don't think Nippon Soda is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Nippon Soda that investors need to be conscious of moving forward. Is Nippon Soda 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.