Nippon Shokubai (TSE:4114) Has Announced A Dividend Of ¥50.00

The board of Nippon Shokubai Co., Ltd. (TSE:4114) has announced that it will pay a dividend on the 22nd of June, with investors receiving ¥50.00 per share. The yield is still above the industry average at 5.4%.

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Nippon Shokubai's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 103% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

EPS is set to grow by 8.8% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 92% - on the higher side, but we wouldn't necessarily say this is unsustainable.

See our latest analysis for Nippon Shokubai

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥27.50 in 2015, and the most recent fiscal year payment was ¥100.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Nippon Shokubai Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Nippon Shokubai has grown earnings per share at 33% per year over the past five years. Although earnings per share is up nicely Nippon Shokubai is paying out 103% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Nippon Shokubai's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Nippon Shokubai that investors should know about before committing capital to this stock. 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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