Dainichiseika Color & Chemicals Mfg (TSE:4116) Is Increasing Its Dividend To ¥90.00

Dainichiseika Color & Chemicals Mfg. Co., Ltd. (TSE:4116) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of June to ¥90.00. This will take the dividend yield to an attractive 4.3%, providing a nice boost to shareholder returns.

View our latest analysis for Dainichiseika Color & Chemicals Mfg

Dainichiseika Color & Chemicals Mfg's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. But before making this announcement, Dainichiseika Color & Chemicals Mfg's earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

If the trend of the last few years continues, EPS will grow by 43.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 ¥60.00 in 2015, and the most recent fiscal year payment was ¥132.00. This means that it has been growing its distributions at 8.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Dainichiseika Color & Chemicals Mfg might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Dainichiseika Color & Chemicals Mfg has been growing its earnings per share at 43% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Dainichiseika Color & Chemicals Mfg's Dividend

Overall, we always like to see the dividend being raised, but we don't think Dainichiseika Color & Chemicals Mfg will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Dainichiseika Color & Chemicals Mfg that investors should take into consideration. 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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