Kanto Denka Kogyo (TSE:4047) Has Announced A Dividend Of ¥8.00

The board of Kanto Denka Kogyo Co., Ltd. (TSE:4047) has announced that it will pay a dividend on the 30th of June, with investors receiving ¥8.00 per share. Even though the dividend went up, the yield is still quite low at only 1.4%.

Check out our latest analysis for Kanto Denka Kogyo

Kanto Denka Kogyo's Distributions May Be Difficult To Sustain

Even a low dividend yield can be attractive if it is sustained for years on end. Even in the absence of profits, Kanto Denka Kogyo is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share is forecast to rise by 75.5% over the next year. This is the right direction to be moving, but it is not enough to achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥3.00 in 2014, and the most recent fiscal year payment was ¥15.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Kanto Denka Kogyo's EPS has declined at around 18% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

We're Not Big Fans Of Kanto Denka Kogyo's Dividend

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Are management backing themselves to deliver performance? Check their shareholdings in Kanto Denka Kogyo in our latest insider ownership analysis. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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