Stella Chemifa's (TSE:4109) Dividend Will Be Increased To ¥85.00

Stella Chemifa Corporation's (TSE:4109) dividend will be increasing from last year's payment of the same period to ¥85.00 on 3rd of June. This takes the dividend yield to 4.5%, which shareholders will be pleased with.

Check out our latest analysis for Stella Chemifa

Stella Chemifa's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Stella Chemifa was paying only paying out a fraction of earnings, but the payment was a massive 2,690% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 19.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ¥38.00, compared to the most recent full-year payment of ¥170.00. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year 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.

Stella Chemifa Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Stella Chemifa has seen EPS rising for the last five years, at 6.6% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Stella Chemifa's prospects of growing its dividend payments in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Stella Chemifa will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing 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.