Nippon Shokubai (TSE:4114) Has Affirmed Its Dividend Of ¥90.00

Nippon Shokubai Co., Ltd.'s (TSE:4114) investors are due to receive a payment of ¥90.00 per share on 24th of June. The dividend yield will be 3.2% based on this payment which is still above the industry average.

View our latest analysis for Nippon Shokubai

Nippon Shokubai'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. The last payment made up 81% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 112.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Nippon Shokubai Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from ¥80.00 total annually to ¥180.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Nippon Shokubai's EPS has declined at around 19% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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 Nippon Shokubai's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Nippon Shokubai that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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