Nippon Shokubai (TSE:4114) Is Reducing Its Dividend To ¥50.00

Nippon Shokubai Co., Ltd.'s (TSE:4114) dividend is being reduced from last year's payment covering the same period to ¥50.00 on the 5th of December. However, the dividend yield of 5.9% is still a decent boost to shareholder returns.

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Nippon Shokubai's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 100% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 8.6%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 94% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Check out our latest analysis for Nippon Shokubai

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥27.50 in 2015, and the most recent fiscal year payment was ¥100.00. This means that it has been growing its distributions at 14% per annum over that time. 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Nippon Shokubai has impressed us by growing EPS at 11% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

Nippon Shokubai's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. Strong earnings growth means Nippon Shokubai has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. 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. 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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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.