Nippon Soda (TSE:4041) Will Pay A Dividend Of ¥120.00

Nippon Soda Co., Ltd.'s (TSE:4041) investors are due to receive a payment of ¥120.00 per share on 1st of July. This means the annual payment is 3.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Nippon Soda

Nippon Soda's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 313% of 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.

Over the next year, EPS is forecast to expand by 2.0%. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

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 implies that the company grew its distributions at a yearly rate of about 23% over that duration. Nippon Soda has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nippon Soda has impressed us by growing EPS at 23% per year over the past five years. Nippon Soda is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

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. This company is not in the top tier of income providing stocks.

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 Nippon Soda that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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