Dainichiseika Color & Chemicals Mfg (TSE:4116) Has Affirmed Its Dividend Of ¥40.00

The board of Dainichiseika Color & Chemicals Mfg. Co., Ltd. (TSE:4116) has announced that it will pay a dividend on the 1st of July, with investors receiving ¥40.00 per share. This makes the dividend yield 3.0%, which will augment investor returns quite nicely.

View our latest analysis for Dainichiseika Color & Chemicals Mfg

Dainichiseika Color & Chemicals Mfg's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Dainichiseika Color & Chemicals Mfg was paying only paying out a fraction of earnings, but the payment was a massive 1,415% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, EPS could fall by 13.1% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 48%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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 ¥60.00 in 2014, and the most recent fiscal year payment was ¥80.00. This means that it has been growing its distributions at 2.9% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Dainichiseika Color & Chemicals Mfg's earnings per share has shrunk at 13% a year over the past five years. 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.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Dainichiseika Color & Chemicals Mfg has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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