Stella Chemifa (TSE:4109) Is Due To Pay A Dividend Of ¥85.00

The board of Stella Chemifa Corporation (TSE:4109) has announced that it will pay a dividend on the 2nd of December, with investors receiving ¥85.00 per share. This will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Stella Chemifa

Stella Chemifa Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Stella Chemifa's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 244% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 23.5%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 98%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥38.00 in 2014 to the most recent total annual payment of ¥170.00. This means that it has been growing its distributions at 16% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

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. Stella Chemifa hasn't seen much change in its earnings per share over the last five years.

Stella Chemifa's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Stella Chemifa will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Stella Chemifa 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.