Taoka Chemical Company (TSE:4113) Will Pay A Larger Dividend Than Last Year At ¥12.00

The board of Taoka Chemical Company, Limited (TSE:4113) has announced that it will be paying its dividend of ¥12.00 on the 4th of June, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

See our latest analysis for Taoka Chemical Company

Taoka Chemical Company's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, Taoka Chemical Company's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 28.3%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥6.00 in 2014, and the most recent fiscal year payment was ¥18.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. 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.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Taoka Chemical Company's earnings per share has fallen at approximately 8.1% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Taoka Chemical Company's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Taoka Chemical Company's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 1 warning sign for Taoka Chemical Company that investors need to be conscious of moving forward. Is Taoka Chemical Company 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.