Hodogaya Chemical (TSE:4112) Has Announced A Dividend Of ¥45.00

The board of Hodogaya Chemical Co., Ltd. (TSE:4112) has announced that it will pay a dividend on the 26th of June, with investors receiving ¥45.00 per share. This will take the annual payment to 2.7% of the stock price, which is above what most companies in the industry pay.

Hodogaya Chemical's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Hodogaya Chemical's dividend was only 17% of earnings, however it was paying out 115% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to fall by 1.2%. If the dividend continues along recent trends, we estimate the payout ratio could be 20%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Check out our latest analysis for Hodogaya Chemical

Hodogaya Chemical Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from ¥40.00 total annually to ¥90.00. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Hodogaya Chemical has been growing its earnings per share at 24% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Hodogaya Chemical will make a great income stock. While Hodogaya Chemical is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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. Just as an example, we've come across 2 warning signs for Hodogaya Chemical you should be aware of, and 1 of them makes us a bit uncomfortable. Is Hodogaya Chemical 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.